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Kay’s Cuts: US meat industry on its knees

Steve Kay, 02/05/2020

A monthly column written for Beef Central by US meat and livestock industry commentator, Steve Kay, publisher of US Cattle Buyers Weekly

 

 

 

 

 

THE giant US meat processing industry is renowned the world over for its scale and efficiency. But in the space of just four weeks, the giant has been brought to its knees by the COVID-19 pandemic.

Worker absenteeism and safety measures mean that beef and pork processing plants are running at less than 60 percent of capacity. A May meat shortage looms.

The decline in utilisation has brought a comparable decline in beef and pork production. The decline in slaughter numbers has been staggering for both its speed and magnitude.

US cattle slaughter the week ended March 28 totaled 684,835 head. Last week’s kill was an estimated 425,000 head. Plant closures and reduced chain speeds mean that in just five weeks to May 2, the year-to date cattle slaughter total went from being 203,000 head above last year to 466,000 head below.

Last week’s slaughter total represented 58.5pc of total industry capacity of 726,000 head per week. Total hog slaughter last week of 1.5456 million head represented 55.7pc of total capacity.

The reduced utilisation and other factors mean that packers’ operating costs have quadrupled. Plants’ fixed costs have increased, because of multiple new measures to protect workers’ health, and packers are also paying workers full wages and benefits even if they remain at home.

Trump’s executive order

President Trump’s executive order last Wednesday requires meat and poultry processing plants to stay open. But it does little or nothing to address the decline in meat production. That is because it does not address the growing absenteeism that is forcing beef and pork plants to run at less than 60pc of capacity.

Even the president cannot force workers to return to work who are at home after testing positive for COVID-19, or fear they will be infected if they return to work. Besides, labor unions and worker advocates say plant workers are still not being protected enough.

Dramatically higher wholesale prices

The dramatic reduction in US beef and pork production means a red meat shortage now looms as a reality, especially as May normally sees a surge in retail sales to herald the start of the summer grilling season. That surge might turn to a bust this May, especially as the price of US wholesale beef cuts (the cutouts) in the last two weeks of April soared to unimaginable levels.

Shrinking beef supplies coincided with last-minute orders from retailers for prompt shipment of product for the start of the grilling season. So packers were able to ask dramatically higher prices each day last week. The Choice cutout advanced US$74.19 per cwt to US $367.56 per cwt, while the Select cutout advanced US $71.14 per cwt to US $350.16 per cwt. Pork cutout values also soared. They advanced an unprecedented US $29.58 per cwt last week to US $105.52 per cwt.

Prospects for Australian exports?

The price of domestic lean manufacturing beef (90CL) has increased much more modestly in the past few weeks. The increase is because of increased retail demand for ground beef, not supply, as cow slaughter so far this year is slightly above last year. US retailers use only fresh ground beef. So there appears to be little in the market for Australian exporters of frozen 90CL to take advantage of.

The next nightmare scenario for US retailers is how to even partially restock their meat cases if consumers hear about a meat shortage and clean-out the cases of beef and pork. Even less beef will be available for retailers this week than last week.

Last week’s total US cattle slaughter was 37pc below the same week last year. So beef production last week might have been down about 34pc. Pork production was likely down 25pc.

Three other issues face retailers:

  • At what point do they tell packers they cannot buy beef at their asking prices?
  • How long are they prepared to lose money on beef?
  • How much can they raise their everyday prices and reduce beef features before consumers refuse to pay the higher prices?

Whatever occurs, US beef demand destruction is likely to start showing up this month. Memorial Day week and weekend beef sales are likely to be the worst in years.

Cattle prices ‘wrecked’

The COVID-19 pandemic has also wrecked the price of US grainfed cattle, and the normal flow of cattle from ranch to feedlot. Cattle prices the week before last fell below US$100 per cwt for the first time since October 2016.

Cattle feeders for two months have been unable to hedge any cattle they have placed because of the collapse in live cattle futures prices from mid-February to early April. So March placements were down 23pc on the same month last year and were the lowest March placements since USDA’s data series began in 1996. April placements were expected to be down 30pc on last year and May and June might see similar declines.

These declines mean that by July 1, the number of calves and feeder cattle outside feedlots might be one million head larger than last year. They will all have to be placed at some point. Concerns are growing that placements will be tightly bunched and eventually cause a huge bulge in grainfed cattle marketings early next year.

The US cattle and beef markets might not return to any semblance of normality for at least a year from now.

 

 

 

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