"President Trump announced plans to mandate the nation's meat plants to remain open. Using an executive order and the Defense Production Act the President will use all resources of the federal government to assure delivery of food. In addition the President will supply protective gear to meat plants in an effort to make safe the workplace.
The difficulty at a beef plant with erratic worker attendance is scheduling. You plan in advance for the next day's slaughter volumes but those plans must be flexible for last minute changes. Cattle are order in from the feedyard but the successful completion of the day's processing rests with the workforce. Shortages of people cause major problems. Missing people require reassignment of individual jobs and if shortages are serious enough, they can stop an entire shift.
Yesterday's slaughter was 2000 head short of last week as one Kansas plant failed to process and will not resume until tomorrow. Other plants are slowing increasing volumes but all slaughter is woefully inadequate and threatening the role of meat in the diet of American consumers. It is as simple as you either can't find it or you can't afford it. The composite cutout has now increased in price by one third in the past ten days and reached an unbelievable high of $312 for the choice cuts.
The current market is part orchestrated, part chaos. The packers propped up some prices holding the $100 paid for some cattle in Nebraska. Other cattle fell into their hands at $150 dressed or a $95 equivalent. The price discovery bears some semblance to the oil markets. Oil, without a place to store it, soon loses its value. Fed and overfed cattle are in the same position.
Media stories of meat shortages were on full display across the web over the weekend. An feature of USDA's food assistance plan is the purchase of additional supplies of all meats. This does not need to occur now when demand for meat is high and prices even higher. Government purchases need to wait until processing volumes are restored and beef prices have declined from record highs.
Aid packages to business operations will reopen this week with additional funds for the PPP program. Livestock associations are requesting Secretary Purdue to remove the $125,000 cap on funds available for damage to the financial profile of the many livestock operations across the country. Lenders are watching current close outs that are moving into an area of several hundred dollar losses per head.
Cattle Futures. The contrast between WTI Crude and Brent oil futures is instructive. WTI Crude is a delivery contract traded at the CME of oil to Cushing, Oklahoma. The Brent oil contract is traded on the ICE commodity exchange and is cash settled. Traders are abandoning the delivery contract in favor of the cash settled because no longs want to own a delivery product.
(Interesting perspective.)
Weekly blurb...
-------
The status of various beef processing plants in our country and Canada is dynamic and changing by the day and sometimes by the hour. Hopefully, this past week will mark the low point in slaughter volumes that were almost 30% smaller than prior year. We only slaughtered 469,000 head compared to 642,000 last year.
Drovers Ag Journal has provided a wonderful interactive map showing the processing plants that are open and those that are closed.
https://www.google.com/maps/d/viewer?mid=1Whf_evOa2-WC_EpE2jj1j6Y1ZDZQmt3C&ll=38.68557162272549%2C-96.09577624322162&z=3 This map does not provide the details of each day's slaughter by plant. The only information available is the daily total on the USDA daily slaughter and beef report.
The disruptions created by the shutdowns and slowdowns are too numerous to list but some of the most important impacts are:
Lost sales. Beef that is rationed means beef that is not eaten by a consumer who is prepared to purchase. There also will be lost sales from high prices. The demand curve for beef is elastic and beef can price out of the price range for many buyers.
Live cattle flows. Orderly flows of cattle from pasture to feedlot to beef plant are important in prevent gaps in the supply chain of too much or too little beef. Consumers desire a reliable, reasonable priced supply of beef and the slaughter shut down has created the opposite.
Dysfunctional marketplace. This past week will be a poster for totally dysfunctional markets whether in the boxed beef, cash trade, or futures trade. None of these markets were working and all have the feeling of "on the fly" guesswork at pricing. Cash market had $15 price ranges. Box prices jumped $40+. Stockers and feeders changed hands at prices changing by the hour. Futures closed in the mid 80s down from $120 earlier this year.
Rebuilding lost capacity with occur with small daily changes and thoughtful innovation. The primary building block will be restoring a healthy workforce with respect and appreciation of the valuable contribution they make to the nation's food supply. Across the country improvements to the facilities and monitoring of their health, will mitigate the health risk to those working in the beef plants. Some changes will slow the processing speeds and others will change the way the carcasses are cut but all will focus on re-establishing normal volumes to the food supply chain.
The task of working off almost 500,000 head of surplus finished cattle will not be easy or quick. As processing volumes increase, prices for boxed beef will fall. A more difficult scenario to anticipate will be the forecast of prices in the live trade. Both fed and replacement markets will be finding their way through this crisis with little guidance from rational supply/demand signals. Progress will occur a day at a time and surprises will be the order of the day.
The difficulty at a beef plant with erratic worker attendance is scheduling. You plan in advance for the next day's slaughter volumes but those plans must be flexible for last minute changes. Cattle are order in from the feedyard but the successful completion of the day's processing rests with the workforce. Shortages of people cause major problems. Missing people require reassignment of individual jobs and if shortages are serious enough, they can stop an entire shift.
Yesterday's slaughter was 2000 head short of last week as one Kansas plant failed to process and will not resume until tomorrow. Other plants are slowing increasing volumes but all slaughter is woefully inadequate and threatening the role of meat in the diet of American consumers. It is as simple as you either can't find it or you can't afford it. The composite cutout has now increased in price by one third in the past ten days and reached an unbelievable high of $312 for the choice cuts.
The current market is part orchestrated, part chaos. The packers propped up some prices holding the $100 paid for some cattle in Nebraska. Other cattle fell into their hands at $150 dressed or a $95 equivalent. The price discovery bears some semblance to the oil markets. Oil, without a place to store it, soon loses its value. Fed and overfed cattle are in the same position.
Media stories of meat shortages were on full display across the web over the weekend. An feature of USDA's food assistance plan is the purchase of additional supplies of all meats. This does not need to occur now when demand for meat is high and prices even higher. Government purchases need to wait until processing volumes are restored and beef prices have declined from record highs.
Aid packages to business operations will reopen this week with additional funds for the PPP program. Livestock associations are requesting Secretary Purdue to remove the $125,000 cap on funds available for damage to the financial profile of the many livestock operations across the country. Lenders are watching current close outs that are moving into an area of several hundred dollar losses per head.
Cattle Futures. The contrast between WTI Crude and Brent oil futures is instructive. WTI Crude is a delivery contract traded at the CME of oil to Cushing, Oklahoma. The Brent oil contract is traded on the ICE commodity exchange and is cash settled. Traders are abandoning the delivery contract in favor of the cash settled because no longs want to own a delivery product.
(Interesting perspective.)
Weekly blurb...
-------
The status of various beef processing plants in our country and Canada is dynamic and changing by the day and sometimes by the hour. Hopefully, this past week will mark the low point in slaughter volumes that were almost 30% smaller than prior year. We only slaughtered 469,000 head compared to 642,000 last year.
Drovers Ag Journal has provided a wonderful interactive map showing the processing plants that are open and those that are closed.
https://www.google.com/maps/d/viewer?mid=1Whf_evOa2-WC_EpE2jj1j6Y1ZDZQmt3C&ll=38.68557162272549%2C-96.09577624322162&z=3 This map does not provide the details of each day's slaughter by plant. The only information available is the daily total on the USDA daily slaughter and beef report.
The disruptions created by the shutdowns and slowdowns are too numerous to list but some of the most important impacts are:
Lost sales. Beef that is rationed means beef that is not eaten by a consumer who is prepared to purchase. There also will be lost sales from high prices. The demand curve for beef is elastic and beef can price out of the price range for many buyers.
Live cattle flows. Orderly flows of cattle from pasture to feedlot to beef plant are important in prevent gaps in the supply chain of too much or too little beef. Consumers desire a reliable, reasonable priced supply of beef and the slaughter shut down has created the opposite.
Dysfunctional marketplace. This past week will be a poster for totally dysfunctional markets whether in the boxed beef, cash trade, or futures trade. None of these markets were working and all have the feeling of "on the fly" guesswork at pricing. Cash market had $15 price ranges. Box prices jumped $40+. Stockers and feeders changed hands at prices changing by the hour. Futures closed in the mid 80s down from $120 earlier this year.
Rebuilding lost capacity with occur with small daily changes and thoughtful innovation. The primary building block will be restoring a healthy workforce with respect and appreciation of the valuable contribution they make to the nation's food supply. Across the country improvements to the facilities and monitoring of their health, will mitigate the health risk to those working in the beef plants. Some changes will slow the processing speeds and others will change the way the carcasses are cut but all will focus on re-establishing normal volumes to the food supply chain.
The task of working off almost 500,000 head of surplus finished cattle will not be easy or quick. As processing volumes increase, prices for boxed beef will fall. A more difficult scenario to anticipate will be the forecast of prices in the live trade. Both fed and replacement markets will be finding their way through this crisis with little guidance from rational supply/demand signals. Progress will occur a day at a time and surprises will be the order of the day.
