Washington Insider-- Thursday

Watching the Grocery Supply Chain

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.


USDA has sent the final rule for the Coronavirus Food Assistance Program (CFAP) to the Office of Management and Budget (OMB) for review. The rule was sent to OMB Tuesday May 5, sources signaled and OMB confirmed.

The rule is labeled as being “economically significant” and there is no deadline listed for the targeted completion.

Now attention will shift quickly to what is in the rule and whether the push by farm-state lawmakers and farm and commodity groups to adjust the pay caps USDA said will be part of the program. Indications are that OMB staff have been working with USDA on the rule so the review by the agency may not take as long as can be the case. Some USDA rules have been pending at OMB since March or April, with one even showing as having been at the agency since November 2019.

US Ag Imports Rose in March, Producing Monthly Trade Deficit

U.S. agriculture bucked the trend seen in the overall U.S. trade picture where both exports and imports fell in March.

U.S. ag trade data shows that exports increased in March from February, but the rise in exports was eclipsed by a surge in imports, producing a monthly trade deficit of $502 million.

U.S. ag exports in March were at $11.89 billion, up 5% from the $11.31 billion in February and the strongest U.S. shipment pace since November 2019. But the five-percent rise was swamped by imports surging to $12.39 billion, a rise of nearly 17% from the February import mark of $10.60 billion.

USDA will be updating their forecast for U.S. ag trade in Fiscal Year (FY) 2020 on May 29, and changes in the outlook are expected based on trade data at the halfway point of FY 2020.

Washington Insider: Watching the Grocery Supply Chain

Bloomberg wrote this week about stresses facing the U.S. meat supply as plants shut down and employee absences grew. Grocers from Kroger Co. to Costco Wholesale Corp. are rationing supplies, the report says, and notes that “even Wendy’s Co. dropped burgers from some menus.”

Prices for wholesale beef and pork have jumped more than 20% since the imposition of the federal executive order to keep plants running during the pandemic. The shortages and price increases underscore the challenges of quickly fixing America’s “broken” meat supply chain, Bloomberg says.

The virus impact has been heavy for meats -- for example, a Tyson Foods Inc. plant in Perry, Iowa, had 730 positive cases, about 58% of employees, Sarah Reisetter, deputy director for the state’s health department, said Tuesday and experts are warning not to expect a quick rebound for supplies.

The reports of shortages are causing considerable anxiety, Bloomberg says and thinks that retail grocers could see meat supplies shrink almost 30% by Memorial Day, leading to retail pork and beef price inflation as high as 20% relative to prices last year, according to agricultural lender CoBank. Iowa-based Hy-Vee Inc. on Tuesday became the latest grocer to limit meat purchases. Shake Shack Inc., executives warned investors a day earlier to expect much higher beef prices.

In addition, the urban press is focusing on the industry’s concentration as a cause, along with its massive regional processing facilities. For current supply bottlenecks to ease, those plants “need to come back at full speed,” Bloomberg says, a challenge it calls “formidable” given the intense need to ramp up safety measures to reduce current rates of infection.

Also, meat plants have become coronavirus “hot spots” in some cases as the disease spread quickly among “elbow-to-elbow conditions” on processing lines that move at “lightning speed,” Bloomberg said.

Iowa’s Department of Public Health on Tuesday revealed large coronavirus outbreaks at several major meat-processing facilities in the state. For example, in addition to the infections at the Perry plant, a Tyson facility in Waterloo had 444 positive cases, or 17% of employees. Iowa Premium National beef in Tama had 258 cases, 39% of employees.

How USDA’s “back to work” rule will affect the industry’s performance is not yet clear, experts say. USDA Secretary Sonny Perdue said that as plants reopen, shortfalls could still run as high as 15%. He cautioned that facilities may run below prior capacity for some time in order to comply with safety guidelines set by the Centers for Disease Control and Prevention.

The federal order will prioritize protective gear and testing kits for meat workers -- a key component to get plants back up and running. Tyson said Tuesday it was resuming limited production at its Pasco, Washington, beef facility. Smithfield Foods Inc. on Monday restarted a meat-processing plant in Wisconsin and the company announced late Wednesday that it will bring operations back at its South Dakota pork plant on Thursday.

But many facilities still remain closed and those that are reopening could be forced to run lines at a slower pace because of social-distancing measures and absenteeism, Bloomberg said. Through Tuesday, processors slaughtered 35% fewer cattle than the same two days a year ago and 39% fewer hogs, according to USDA. Tyson Foods executives said Monday that there could be continued “short-term outages” in availability for some meat products at grocery stores. In addition, Wendy’s is reporting that beef menu items are in short supply at some locations. This led some press reports to conclude that the U.S. meat supply chain has been “broken quickly.”

Among the press, there is frequent criticism regarding the sector’s heavy consolidation. For example, Tyson Foods and its top two rivals, JBS SA and Cargill Inc., now control about two-thirds of America’s beef. Pork and chicken are similarly dominated, Bloomberg says.

This means that supply interruptions at major slaughter plants, although modest in number, have impacts all the way to the U.S. consumer -- and have left some producers with little choice but to destroy thousands of animals. Politicians have been quick to take notice, and are proposing wide ranging new rules to investigate. Meanwhile, a bipartisan group of state attorneys general has asked the Justice Department to open an antitrust probe into meat packers over concerns about rigged beef prices.

While the federal back to work order could help stem the tide of additional closures, “attracting workers to fill the thousands of vacant positions at meat plants across the U.S. is still an issue,” Will Sawyer, an animal-protein economist at Colorado-based CoBank, said in a report.

“As communities reopen with only about one week of meat supply in cold storage, shortages and stock outs in the meat case couldn’t come at a worse time,” he said. “Food inflation and a weak U.S. economy is a combination that will leave many consumers in greater financial strain.”

So, we will see. Clearly the many, many supply chain interruptions facing most commodities will take years to repair and will mean severe problems for producers and consumers alike, that process is still only beginning. These “fixes” will often involve far-reaching changes and should be watched closely as they proceed, Washington Insider believes.

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