OMAHA (DTN) -- Lee Reichmuth, who runs a cattle feedyard near Lindsay, Nebraska, recalls a year ago seeing "records broken" in cattle markets, such as boxed beef price moving from a little more than $2 a pound to the range of $4.75 a pound while, at the same time, the April futures contract for fed cattle took a $40 dip in value.
A year ago, as much of the country was in lockdown, the supply chain for meat buckled as workers by the hundreds at packing plants across the country tested positive for COVID-19, causing both beef and pork packing plants to shut down across the Midwest and Plains. By the third week of April, the packing crisis had shredded as much as 25% of meat-processing capacity nationally.
The supply chain backed up to the point that cow-calf producers held on to their calves longer before putting those cattle on feed. The cattle industry is still seeing some ripple effects from that.
"We backed up so many cattle that we're still working our way through them," Reichmuth said.
The situation in pork was more extreme, as daily slaughter fell to roughly one-third of normal volume in April, down about 190,000 a head a day. That eventually led to producers euthanizing swine in large numbers -- a tally not officially released at the USDA level, though USDA could soon start accepting applications to pay those producers for their losses. An Iowa aid program last year paid $3.1 million to producers who had euthanized 175,533 hogs.
Then-President Donald Trump signed an order declaring state and local officials could no longer shut down packing plants and USDA must work with the industry to continue the supply of beef, pork and poultry. Highlighting the concentration in packing, Trump's executive order noted "the high concentration of meat and poultry processors in a relatively small number of large facilities."
The Food & Environment Reporting Network, which has tracked coronavirus cases at packing plants and food processing plants, reports at least 89,050 workers were infected -- 58,313 at meatpacking plants, 17,725 at other food processors and 13,012 farm workers. At least 378 of those workers died, including 286 at meatpacking plants.
The industry dynamics have changed dramatically during the past year with an infusion of money for cattle and hog producers; government and private investment in smaller, niche packing plants; and improvements for the safety and welfare of workers at the major packing plants.
CFAP CAME THROUGH
By April 1 of last year, at least 143 senators and congressmen had written USDA asking then-Agriculture Secretary Sonny Perdue for immediate aid to cattle producers from the Coronavirus Aid, Relief and Economic Stabilization (CARES) Act.
Under the Coronavirus Food Assistance Program (CFAP 1 and CFAP 2), aid programs under the Trump administration, cattle producers have received nearly $7.17 billion in aid, $2 billion more than any other eligible livestock or crops.
The aid throughout the year eased early panic among producers and others who had projected billions in losses.
"We were hearing from a lot of bankers and industry leaders. A lot of them were claiming that 15% to 20% of their producers were going to be out of business without some kind of financial aid," Reichmuth said.
He added, "What I've heard is it's been tremendously helpful. Obviously, if you were hedged up, you didn't need it, but that's not everybody. In fact, we were kind of on the low end of the whole industry being hedged. The aid helped a lot of people, and we've had other programs come out."
Starting April 5, USDA's newest aid program, Pandemic Assistance for Producers, will provide cattle producers with a plus-up payment on the CFAP 1 aid that will range from a low of $7 a head for feeder cattle under 600 pounds to a high of $63 for fed cattle ready for slaughter -- that fell under the May 14, 2020, inventory deadline for CFAP 1 aid.
Those payments should automatically be paid in April based on last year's CFAP 1 application. Cattle and swine producers also will get the chance, starting April 5, to make adjustments to their CFAP 1 applications from a year ago.
Pork producers also were expecting a $17-per-head payment based on CFAP 1 inventory, but that payment has been put on hold as USDA reopens applications for that program. Contract growers also could receive a payment of up to 80% in lost revenue in 2020, and applications for those payments begin April 5 as well.
Pork producers so far have received about $1.14 billion in CFAP aid. The benefit of those funds to producers depends heavily on the timing of their inventory last year, said Dennis Liljedahl, president of the Iowa Pork Producers Association. Some producers were still faced with months of financial losses last year, he said.
"If they got caught in a crunch where they had market hogs ready at the exact wrong time, that aid was a great benefit," Liljedahl said. "But I don't think it probably made them whole."
USDA's quarterly hog inventory for March came at 1.8% below a year ago, and the lean hog contracts through August are running from $101 to $106 per hundredweight. Prices are strong even with higher feed prices and pork exports running just slightly behind last year's pace, but pork producers overall are in a much better place.
"The challenge right now would be grain prices, but if our prices keep pace, things will be on an even keel," Liljedahl said. "A lot of our producers probably locked in both our prices and their input prices, so they are probably doing pretty well."
NICHE PACKING EXPANSION
Ty Gustafson, who co-owns Story City (Iowa) Locker, shows on his website that his processing space is pretty much booked up for 2021. Gustafson's locker was the first in Iowa to take advantage of the state's seal of approval by USDA's Cooperative Interstate Shipping program (CIS) last year. The approval allows livestock producers getting meat processed at Story City to sell that meat across state lines.
"We were instigators of the CIS program for Iowa," Gustafson said. "We were the ones who pushed it through, and that's why they let us be first."
Story City's booked schedule is also a function of smaller livestock producers who direct-sell meat also becoming more organized with their own business plans. In the past, they used to just wait a few months out and plan for processing a few head. Now they are looking further out and signing up their own customers.
"Everybody's a lot more organized, including us, because I'm actually working with my regulars right now on booking next year and getting it taken care of, so they know how many calves or pigs to hold back," Gustafson said.
The pandemic and CIS approval came at about the same time, so Gustafson said it's difficult to directly gauge which has driven more demand for the plant's services.
"We knew from the other states that have done it in the past that the small processors in those states have seen the benefits, so that's why we wanted to make sure and implement it here in Iowa. But then the pandemic hits and people were afraid there was going to be a meat shortage, and other people wanted to stock up and cook more for themselves and buy more local and direct-from-farmer type of situations. So that was definitely an impact."
Only eight states have gone through the Cooperative Interstate Shipment program to allow state-inspected plants to ship products across state lines. Those include Indiana, Iowa, Maine, Missouri, North Dakota, Ohio, Vermont and Wisconsin. The CIS agreement also is limited to processors with fewer than 25 employees involved in the handling of the meat. Oregon is considering applying to USDA for a CIS, but the state is just now starting a new state inspection program.
Rebecca Thistlethwaite, director of the Niche Meat Processors Assistance Network based at Oregon State University, said the CIS process is a significant cost to states because they have to send all of their state inspectors to a six-week training course with USDA, and there is also a lot of paperwork.
The Niche Meat Processors Assistance Network is a group made up of about 1,800 niche meat processers and producers who process up to about 100 head a day. Thistlethwaite said federal and state aid is starting to provide some help for these businesses to grow.
Aid passed last December provides USDA at least $60 million to provide grants of up to $200,000 to small meat custom processors to make upgrades that would allow them to fall under state or federal inspection programs.
In the American Rescue Plan that passed last month, Congress also provided $100 million to cover overtime fees for Food Safety Inspection Service (FSIS) inspectors.
"That will be a game changer because a lot of small plants want to add a second shift or a Saturday shift, and they are hesitant because of the expensive FSIS overtime fee," Thistlethwaite said. "And there is certainly the demand there for them to add more shifts. So that's all geared towards small plants."
Thistlethwaite said at least 16 states also used CARES Act funds to help small processors with plant upgrades, such as new equipment or expanding cooler space.
One piece of federal legislation Thistlethwaite sees gaining support is the Strengthening Local Processing Act, which would allow plants with up to 50 employees to apply for the CIS and provide states more support to create a program.
New processing plants are beginning to open or are under development in various states, including multiple new ventures.
One group, Missouri Prime Beef Packers LLC, started processing cattle at a plant in southern Missouri in mid-March that the group said earlier this year would potentially process 500 head a day.
Two separate beef-processing projects in Idaho -- True West Beef and Intermountain Packing -- were announced separately last year that could open by the start of 2022. Each operation, when announced, also stated they would process up to about 500 head of cattle a day.
Also in March, a group of former Cargill and Swift executives, along with Nebraska feedlot operators and ranchers, announced plans to break ground later this year on a $300 million project near North Platte, Nebraska, that ideally would be open by 2023. The project, called Sustainable Beef, has plans to process as many as 1,100 head a day.
A repeated theme in most of those announcements is acknowledgment that these smaller plants don't expect to compete head-to-head with the largest packers. Still, there is a lot of potential demand for smaller processors for exports and high-end product.
The larger packers are not slowing down, though.
National Beef Packing announced in March that the packer would invest $100 million to double daily processing capacity to 2,500 head at its plant in Tama, Iowa. The expansion should be done by late 2022, the company stated.
In pork, JBS plans to start production in Missouri for cooked and pre-cooked bacon at a new plant this year as well.
Tyson also is expanding its case-ready meats by repurposing a Columbia, South Carolina, plant to process and package both fresh pork and beef products, including ground beef. That plant had closed last August, but Tyson said the $42 million investment will double employment at the plant.
ESSENTIAL TO THE INDUSTRY
The supply chain crashed when an overlooked group of workers proved to be one of the most essential workforces in the country. Most major packing plants were put together and expanded piecemeal. They were not designed to allow thousands of employees to simply spread out, said Mark Lauritsen, national vice president of the United Food and Commercial Workers Union.
"A year ago was just terrible. Those workers went through complete hell," Lauritsen said.
Now, nearly every plant requires layered personal protection equipment, such as face shields, goggles and plexiglass in common areas such as dividers. Another area in plants getting an overhaul now is ventilation at plants, including changes in filtration and air flow throughout plants.
"A number of employers are installing, or have installed, these new filtration systems, which really cleans the air," Lauritsen said. "I've told employers as we're talking about it, you can look at this as a COVID expenditure, but once you get this stuff in place, it's going to have a positive impact just on your normal seasonal colds and flu. So, we're seeing changes such as that."
After the spikes in cases at packing plants last spring and early summer, Lauritsen said cases at packing plants tapered off, and packers have not seen the spikes in cases that hit the country after the holiday season, for instance.
"And I think that this was because of the work collectively everyone has done to make those safer places," he said.
Major packers also have stepped up with vaccination clinics. JBS and Cargill have held vaccination clinics that Colorado's governor visited to support. Other states, such as Kansas, set up vaccinations at packing plants by also coordinating with the UFCW and companies in that state, Lauritsen noted. Tyson has set up more than 65 events at its facilities around the country for on-site vaccinations to more than 26,000 workers so far. The company also offers up to four hours of pay for vaccinations outside of their normal shift. Smithfield Foods last week in Sioux Falls, South Dakota, also started vaccinating its workers where nearly 1,300 out of 3,600 workers had contracted the virus in the past year.
"You have the employers that spent the money to bring in the medical professionals to actually put shots in the arm," Lauritsen said.
Still, governors in some states that had major hotspots and packer shutdowns did not make those workers a priority for shots early on. Both the UCFW and the North American Meat Institute (NAMI) called on states to accelerate vaccines for packing workers. Other groups made similar demands for farm workers as well.
"It's frustrating to think that everything we went through last year at this time. Those workers went through complete hell," Lauritsen said. "And we forget about it a year later. We bragged about them -- I mean society was applauding them as essential workers -- and now, a year later, and there's light at the end of the tunnel, and all of a sudden it's let's push these guys to the back."
Packers and the union are also continuing some traditional battles, such as line speeds. Just this week, a federal judge halted a USDA rule under the Trump administration that has allowed pork plants to speed up line speeds, citing that USDA didn't adequately address worker safety.
Chris Clayton can be reached at Chris.Clayton@dtn.com
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