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Oklahoma State University

Beef packing industry largely offsets market disruptions after Tyson Finney County fire

Thursday, October 10, 2019

Oklahoma ranks fourth nationally in the production of cattle and calves, with cash receipts exceeding $3.7 billion annually. (Photo by Todd Johnson, OSU Agricultural Communications Services)

The Aug. 8 fire that shut down Kansas’ Tyson Finney County packing plant caused significant disruptions in beef markets, but America’s packing industry managed to mitigate some of the negative effects by being extra busy on the weekends.

“Despite the loss of roughly 5 percent of steer and heifer slaughter capacity, the packing industry has done a remarkable job of maintaining yearling slaughter while total industry capacity is pushed very near its limit,” said Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist.

In the week after the fire, Monday-through-Friday yearling slaughter was down 4.6 percent, a decrease of 22,158 head. However, that Saturday saw weekly total slaughter down just 1,002 head from the pre-fire week, a decrease of 0.6 percent.

Weekday slaughter was down 3.8 percent – a 18,345 head decrease – in the second week after the fire. However, that Saturday’s active harvest brought the weekly total up for an increase of 2,423 head compared to the week prior to the fire.

Steer and heifer slaughter decreased 11,511 head during the third weekday go-round, when compared to the pre-fire total. However, once again an active Saturday made the weekly yearling slaughter total only 175 head less than the week prior to the fire.

“Pre- and post-fire comparisons are less meaningful as more time passes, thanks to the normal course of markets,” Peel said.

In the four weeks after the fire, weekday steer and heifer slaughter decreased every week compared to the previous year with a range from 0.4 percent less to 2.9 percent less, with an overall average decrease of 2 percent. However, Saturday slaughter totals increased anywhere from 14.4 percent to 54.6 percent weekly, resulting in an average 22.3 percent higher year over year in the four weeks after the fire.

“Total steer and heifer slaughter in the four weeks after the fire was 2,016,178 head, an increase year over year of 12,562 head,” Peel sad. “This was accomplished as a result of considerable logistical contortions and extra cost, including large Saturday harvests and rerouting cattle to other plants farther away.”

Unlike milk markets, where disruption in processing often results in milk being dumped, Peel said it is evident that no significant backing up of finished cattle occurred despite the squeeze on U.S. packing capacity after the fire.

“Any significant backlog of more than 2 million head of slaughter-ready cattle would have pushed carcass weights up,” he said. “However, in the four weeks after the fire, both steer and heifer carcass weights were down 4.25 pounds year over year, close to the year-to-date decreases of 4.97 pounds for steers and 5.46 pounds for heifers.”

Steer and heifer carcass weights currently are increasing to a seasonal peak, as is typical for October or November. According to recent U.S. Department of Agriculture data, steer carcass weights were 891 pounds, a decrease of 5 pounds compared to last year, while heifer carcass weights were 811 pounds, the same as a year ago.

“The risk going forward is whether the packing industry can continue to hold slaughter rates high through the end of the year,” Peel said. “Large Saturday harvests are more costly and can’t be maintained indefinitely. There will continue to be stresses on fed cattle demand and flows of cattle to slaughter until the damaged plant returns to operation.”

Markets typically provide strong price responses to a shock such as the Aug. 8 blaze in order to initiate actions that repair the market disruption. For example, the fire caused an immediate loss of fresh beef product into wholesale beef markets. This left a variety of beef buyers scrambling to find product and made it difficult for Tyson to meet its contractual obligations.

“Not surprisingly, spot boxed beef prices jumped sharply the first week after the fire and peaked the second week before starting to recede,” Peel said.

Choice boxed beef cutout values increased from a weekly average of $216.04 per hundredweight the week before the fire to a peak of $239.87 per hundredweight two weeks post blaze. By the final week of September, Choice boxed beef price had decreased to $214.51 per hundredweight and has continued to decline seasonally lower into October.

“Prices for all beef primals increased, though the jump was quicker and more sustained for chuck and round compared to the middle meats, due in part to normal seasonality of the products, with ribs and lions typically weakening from August into September while the approach of roast and crock pot season pushes chucks and rounds higher,” Peel said.

Noticeable effects were largely absent from boxed beef markets one month after the fire, according to USDA data. On the other hand, cattle futures markets reacted dramatically to the fire, which is exactly the role of futures.

“Both live and feeder futures gapped limit down for two days following the fire,” Peel said. “Both markets continued lower until after Labor Day, and then began a recovery that rose to fill the down gaps by the end of September.”

Peel added cash feeder cattle markets dropped initially after the fire, most likely caused by the uncertainty about long-term impacts on cattle markets. Lightweight feeder cattle prices showed variable recovery through September, ending below pre-fire levels on normal seasonal pressure.

“Stocker cattle prices have been steady to higher from September into early October, with wheat pasture demand and other market fundamentals driving the market,” Peel said. “Heavy feeder prices dropped sharply the week after the fire. However, recovery began by the second week. By late September, heavy feeder prices had recovered to exceed pre-fire levels.”

As one would expect, fed cattle prices took the biggest hit after the fire, thanks to the sudden loss of packing capacity. Fed prices dropped from $112.37 per hundredweight the week before the fire to $106.68 per hundredweight the first week after the fire.

Cash fed cattle prices ultimately bottomed out five weeks after the fire at $100.07 per hundredweight. By the first week of October, fed cattle prices were $107.12 per hundredweight. Fed prices typically reach a seasonal low in September and are lower in October compared to August.

“Limited packing capacity likely will continue to restrict fed cattle prices somewhat,” Peel said. “Though some in the industry were surprised and frustrated with market reactions after the Tyson fire, the type and duration of price behavior are exactly what is predicted by market economics.”

The Oklahoma Cooperative Extension Service is one of two state agencies administered by OSU’s Division of Agricultural Sciences and Natural Resources, and is a key part of the university’s state and federally mandated teaching, research and Extension land-grant mission.

MEDIA CONTACT: Donald Stotts | Agricultural Communications Services | 405-744-4079 | donald.stotts@okstate.edu

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