Beef supply chain issues courtesy of COVID-19 creating financial uncertainty

By Dusty Sonnenberg

According to the USDA’s National Daily Cattle and Beef Summary for Tuesday, April 14, 2020, an estimated 99,000 head of beef cattle were slaughtered that day. That number is down 7,000 head from the same day a week ago, and 24,000 head from just one year ago. That number, while dramatic, is not surprising given the news that two of America’s largest beef packers have closed two plants due to labor issues resulting from COVID-19. JBS USA has closed its Greeley, Colorado facility through April 24, and National Beef Packing Company has closed its Tama, Iowa facility through April 20. Combined, the two facilities slaughter approximately 6,500 head of beef cattle every day. This comes just a matter of days after JBS USA had to close its Souderton, Pennsylvania beef facility for the same reasons.

The loss of packer processing capacity will have ripple effects through the entire industry. “There is an abundance of cattle available in the market right now,” said Dan Frobose, a cattle producer from Wood County. “The packer is really in the driver’s seat when it comes to purchasing cattle. The packer has plenty of retail demand, and the supply of cattle available exceeds the packer’s current capacity.”

While certain segments of the beef sales chain have declined, such as demand in the restaurant and food service industry, there should be growing retail demand for beef products, especially with more families cooking at home as America goes into the summer grilling season.

Eventually hardships from the packer plant closings will be felt by consumers who will be paying higher prices at the meat counter.

“The closure of the packing plants during this crisis will have an impact on cattle and beef prices,” said Colin Woodall, CEO of the National Cattlemen’s Beef Association. “Plant closures and slow-downs have significant regional and national implications that will ripple through the marketplace.”

These shutdowns do not only impact the cattle producers.

“Every member of the beef supply chain relies on processing plants operating daily to keep product moving,” Woodall said.

Frobose worries about younger producers that do not have the equity built up to weather the storm.

“Black Swan events like this can be detrimental to younger producers. Typically, at this time of the year, the market improves, and the traditional indicators would say to stay the course,” Frobose said. “If a producer had cattle in the 900- to 1000-pound range with the strategy to sell in the summertime June/July/August market, they may be able to slowly change their diet to include more forages and attempt to hold them back and wait for a more favorable market in September and October.”

It can be challenging, though, to take cattle from a higher energy finishing ration back to more of a bulking ration. Another concern is that if cattle are held back too long, once the packing plant capacity does resume, there will be a glut of heavyweight cattle on the market and it may reduce demand for those that grade prime. Yield grade is based on carcass weights, and discounts could be experienced depending on how big the cattle get.

“If a farmer typically sells on a grid contract, they should have a discussion with the contract holder regarding delivery,” Frobose said. “Often times the contract will have conditions built in. For example, if the contract specifies 85% Choice or greater and a Yield Grade 3 to be delivered to a specific location, but if something changes for reasons beyond the farmers control, (such as packer plant closings) and the cattle end up being a Yield Grade 4, the packer may make exceptions. The best thing is to have that discussion with the contract holder now.”

Currently many local auctions are not receiving or selling cash cattle, they are only handling contract cattle. At this time, the industry processing capacity is challenged as reduced processing has occurred with several companies having to close locations. The priority for these packers at this time appears to be processing contract cattle, however, a number of packers including large national and regional packers as well as local processing plants are still handling cash cattle.