Economic Tidbits

Tyson Fire Creates Havoc in Cattle Markets

Friday, August 9, touched off a rough week for cattle markets and producers. A Tyson processing facility near Holcomb, Kansas, suffered a fire which took roughly 5% of the nation’s processing capacity out of service. Steven Koontz of Colorado State University was prescient a week ago when he wrote, “The impact of this event on fed cattle markets will be substantial.

The market is in the middle of the third quarter: supplies are heaviest, slaughter weights are ramping up, and competing meat supplies will begin their fall increase. . .”  The Kansas Livestock Association said, “Based on CattleFax analysis, shifting the supply to other plants in Kansas, Texas, Colorado, Nebraska and Iowa will mean capacity in those regions needs to run 8% to 8.5% higher.” In effect, 50,000-60,000 animals each week will need to go to a different facility for processing.

To say the least, cattle prices responded negatively to the disruption. Both slaughter cattle and feeder cattle prices were down significantly early last week before stabilizing at lower levels. The Nebraska Cattlemen reported Nebraska dressed sales were mostly down $9.00-$10.00/cwt. compared to the previous week. In contrast, boxed beef values rose sharply in response to the supply disruption. The sell-off in cattle prices and increases in boxed beef values prompted concerns that the packing industry was taking advantage of the situation. In response, Greg Ibach, Under Secretary for the USDA Agricultural Marking Service issued a statement last week saying the USDA “will continue to monitor cattle prices and procurement activities and will remain vigilant for any livestock marketing entities seeking to unfairly take advantage of the situation.”

Most market observers believe the initial market impacts will be the biggest and the impacts will diminish over time. While markets will remain volatile for the foreseeable future, there are economic forces which will help the industry overcome the setback. Quoting Colorado State’s Koontz again, “The countering pressures are that packer returns are excellent: farm-to-wholesale margins are very strong. This disruption will maintain incentives for a packer to run as many hours as possible. Market-ready inventories of cattle are strong but are being depleted through the summer and this will persist into the fall. Further, prices for fed cattle have been reasonable through the summer—after early summer collapses—and feeding costs have been declining. Also, margins for retailers have been very strong some of the strongest in recent years. There are clear economic factors countering market disruptions.” Cattle producers hope these forces exert themselves soon rather than later.

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