HOUSTON (DTN) -- A fundamental shift in the beef industry's supply-chain mindset is likely as the U.S. moves into a post-COVID world. That shift will focus less on "just-in-time" delivery of product, and more on a system that tries to have contingencies built in "just in case."
Don Close, senior protein analyst for Rabobank, released a ground-breaking report on the issue at the National Cattlemen's Annual Meeting in Houston last week. In, "Beef Supply in a Post-COVID World," Close analyzed what a "just-in-case" world might look like for the nation's beef suppliers.
The veteran market analyst spoke to DTN about both this new report and his thoughts on news of the Canadian border-blockade by truckers protesting COVID-vaccine mandates. The blockade is just one example of how a just-in-time delivery system can lead to problems for industries in today's volatile business environment.
Close told DTN at publication time that feed yards in Canada are facing the possibility that desperately needed feed supplies won't reach them in time due to the ongoing blockade. This could force early sales or transportation of cattle. Close said he hoped the issue would be rectified before there is any market fallout in the U.S., but he noted it's something the industry needs to be watching.
"This is really a complicated issue. I think ultimately, they will be forced to find a solution and allow those truckers to cross. I think the vaccine rule needs some flexibility," said Close. "The bigger worry I have with regards to the Canadian cattle feeding industry right now is that under normal conditions they like to have a feed supply on hand of two to three weeks. About a week ago we heard they were down to a five-day supply of corn and distillers products for some 1.5 million cattle in Alberta. They are up against the wall in an absolute crisis situation right now if that is the case. They will be heavily dependent on cooperation from the Canadian-Pacific Railway to get railcars of corn into that feeding area."
Close added this situation has been made worse due to drought conditions the region has been under over the last 12 months or more. Conventional feed supplies of feed grain barley and feed wheat are short and there is no hay reserve. This domestic feed situation has left many Canadian feeders dependent on U.S. corn.
As for market reaction, Close said a number of scenarios have been discussed. If forced sales of cattle result from the feed emergency, short term it could negatively impact the feeder market.
"If they started shipping market-ready cattle, or close to those, to the states to get them cleared out quicker than what Canadian packers can accommodate, it would put short-term pressure on our fed cattle market," said Close. "But I don't know that I'm ready to go there."
REPORT HIGHLIGHTS KEY SUPPLY CHAIN ISSUES
In Close's "post-COVID world" he said it's not yet clear where the beef industry reverts to pre-pandemic norms and where permanent changes take place. One key consideration will be the need for a "more durable and flexible supply chain" which the analyst said would mostly focus around post-harvest changes in the system.
"It is not realistic or economically feasible to think producers can build and hold an increased inventory of cattle with the elasticity available when market conditions call for contraction or increased supplies of cattle to the market," he said. It is important, he added, for producers to be aware of changes that are occurring throughout the supply chain.
"Any changes, any inventory building, any additional controls and inspections could have a direct impact on the total cost of beef to the end user," he said. "That could change historical norms for live-to-wholesale and live-to-retail spreads."
Today's processors, distributors and retailers are building in more supply resiliency in key areas including automation, packaging, sustainability and transportation.
LABOR AND AUTOMATION
Close noted that while there are concerns by some over more plant automation, for now what that really means is more efficiency. He said all levels of the supply chain are adapting technology to create data to help boost efficiency. He expects more traceability, boxed beef transfers, labeling and beef storage, order filling and driverless forklifts. This is all a direct fallout from what happened during COVID. Close reported that over the last two years wages for plant workers have increased 33% and organized labor has gained leverage.
PACKAGING TO EXTEND PRODUCT LIFE
While Close said it's hard to find fault with boxed beef wholesaler packaging, at the retail level changes are coming.
"The age-old cellophane wrap over a foam tray has served the industry for a long time. That traditional packaging serves a purpose; it allows oxygen into the package that serves to brighten the color of fresh beef. It is familiar to shoppers, and they are comfortable with it. Unfortunately, it is designed for hours of shelf life, not days," he explained. "Research is underway that focuses on enhanced durability and extended shelf life with materials that have antimicrobial characteristics, as well as biodegradable materials, the decomposition of which is accelerated by heat and humidity. It will be interesting to see these products come into the market and see how this new packaging will be accepted by consumers."
Close added, the issue of waste and sustainability will also have to be addressed for consumers when it comes to this new packaging.
Expect to see continued growth in the areas of inspection and other third-party verifications within the beef industry in the years to come. All of this ties into consumer demand and the ideal of sustainability throughout the process. Close said, as expected, this will add to the cost of production and further widen farm-to-wholesale and farm-to-retail spreads.
"The cost of this will have to be spread out," he added. "As the industry moves forward it's time for all involved to pick up a piece of this price."
There are no easy answers when it comes to the U.S. transportation system, Close said. On the one hand, there are alarming statistics that show a major shortage of long-haul drivers today -- a 30% reduction since the pandemic alone. In addition, retirement is leading to many drivers leaving the profession permanently.
Autonomous trucks, which exist and are being tested in some areas, won't be a complete answer, he added, noting our interstate system today is simply not equipped to add a large number of haulers. Rail is likely a good opportunity as the transportation issue evolves, but Close noted it will take a massive reconfiguration and rethinking of that segment of the industry to make it work.
"The U.S. rail system was designed to haul bulk commodities long distances as efficiently as possible and for that purpose they have been hugely successful. To switch to an intermodal network, trains would need to be smaller, faster and more efficient. That means smaller unit sizes with faster loading and unloading times, targeted to specific markets."
Lastly, the one area of change with the greatest potential direct impact on cattle producers will be meatpacking plants' abilities to embed more automation into their facilities in the future. That workforce, though, will largely need a new set of talents from the one that exists today.
"The challenge of finding and retaining a ready workforce has increased labor costs to the tipping point where investments into technology, robotics and software advancements have become economical," Close concluded. "Anything that de-risks packers from becoming a dam that slows the flow of market-ready cattle is a win for cattle producers."
Victoria Myers can be reached at email@example.com
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