Tyson Plant Fire Pushes Packer Beef Profits to New Heights
August 27, 2019
A fire at a major U.S. beef processing plant earlier this month is upending American livestock markets, slamming cattle prices while benefiting meatpacking companies.
The Tyson Foods Inc. plant in Holcomb, Kan., had the capacity to slaughter 6,000 head a day of cattle, or about 5% of U.S. beef production, before it was taken out of production on Aug. 9. The facility’s shutdown has created a livestock surplus for the region, dragging down futures to the lowest in almost three years. That is giving meatpackers such as Cargill Inc., JBS SA and Marfrig Global Foods SA access to cheap supply just as demand from retail shops booms.
The Labor Day holiday is one of the most popular days for grilling beef, so the fire left retailers reeling. Fueled by packer manipulation, retailers began engaging in bidding wars to secure packaged meat for store promotions they’ve already committed to providing to consumers. Even Tyson Foods could benefit, with bigger profits at other plants offsetting losses from the fire.
Beef-packer margins skyrocketed, to $378.25 and over per animal. That’s more than double the levels reported just a week prior. Wholesale prices surged to $2.3869 a pound that Friday, the highest in two years. Meanwhile, cattle prices on cash markets crashed to $1.0865 a pound on Friday, the lowest for this time of year in nearly a decade.
We hear from industry that we need more cooperation with parties of all levels. This is what the KLA and NCBA model has got us to at this point. Producers lack fluidity and transparency in our markets. Without strong negotiated pricing, the packers are taking full advantage of crippled contracts and desperate retailers. It’s their biggest windfall yet, and they’re the ones that had the fire.
Consumers may not see an immediate increase in steak and burger prices at grocery stores, because marketing and promotions are already in the pipeline for retailers. The reality of higher prices are likely certain since it could take three to six months to rebuild the Tyson plant. If the Labor Day weekend results in strong consumer demand, retailers might have to replenish supplies resulting in higher prices could arrive after the holiday.
Beef prices were already set to gain due to African swine fever spreading in China and decimating its hog herd. Beef, along with chicken, will be used to substitute for missing pork. The increased demand may be too little, too late for some American Producers that are already seeing record setting input costs combined with rock bottom cattle prices.
There are a number of reasons a plant could face emergency shutdown: fire, flood, weather, etc. Vast swings in cattle prices over a period of hours, not years, is cause for serious alarm and concern. It is time for congress to dismantle these packing monopolies and return some dignity to the industry that feeds Americans.
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