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  • Should people expect shortages or price increases for certain meats in

  • the weeks ahead? Several beef factories have been forced to shut

  • down. Nearly two dozen plants are functioning under capacity.

  • There is going to be a shortage.

  • It's been a volatile and crushing few months for the meat industry.

  • In March, the shelter in place, orders and shutdowns caused a

  • complete shift in purchasing behavior.

  • Panicked consumers moved from spending more than half their food

  • expenditure outside the home to mostly eating at home.

  • On top of that, an entire market was cut off when restaurants and

  • schools were shuttered.

  • By April, the coronavirus started wreaking havoc on workers and

  • processing plants. These are very different causes that created

  • different sorts of disruptions in the sector, both of them really

  • unprecedented in terms of any other events that we've ever seen.

  • Sick workers meant a broken supply chain.

  • Dozens of plants shut their doors and producers had to keep their

  • live animals on hold.

  • For the month of April, production of beef and pork dropped by 21

  • percent and 11 percent, respectively.

  • Some farmers resorted to euthanasia.

  • You can't just stop pigs from being born and continuing to grow.

  • And so when you have a group that gets stuck in the finisher and

  • can't move on to the packer, you then have the group behind them

  • that's knocking on the door.

  • Despite President Trump's use of the Defense Production Act, many meat

  • packers struggled to stay open.

  • Live cattle and pork prices dropped by 25 to 40 percent, while

  • wholesale prices more than doubled.

  • Near the end of April, meat prices at the grocery store had spiked 8

  • percent. We saw the largest daily increase and the largest daily

  • decrease in the past 20 years.

  • Within just the past couple of months.

  • Recent studies estimate 2020 losses to be 13.6 billion dollars for the

  • beef industry and nearly 5 billion for hog farmers.

  • But the supply chains, fragility and the repercussions that have

  • followed could last for months, if not years.

  • So how did this happen?

  • Meat is a huge business in the U.S..

  • It's no coincidence that a burger is the quintessential American

  • food. We had a big backyard barbecue.

  • We had dogs, hamburgers.

  • Americans consume more meat and poultry than any other country in the

  • world. About 220 pounds per year.

  • The meat industry is as complex as it is diverse.

  • While the basics of the supply chain is pretty much the same across

  • the board, the nuances within each animal type or each phase are

  • manifold. Poultry, it's almost entirely a completely vertically

  • integrated industry, which means that the integrator think Tyson or

  • Sanderson Farm owns the chicken from the day it's born until it's

  • sold to a grocery store.

  • You have farmers who contract with those integrators to grow out the

  • animals, but they never own the animals.

  • They provide a barn.

  • But even the feed is provided by the integrator in about 40 percent

  • of hog producers operate on this kind of production contract.

  • There are still independent hog producers and how they sell those

  • hogs depends on their relationships with the packers.

  • Hogs are sort of in the middle of chicken and cattle or cattle is a

  • much less vertically integrated sector.

  • It takes a cow anywhere from 21 to 30 months from the time it's

  • conceived until it's ready for processing.

  • During that time, the animals can go through multiple owners, leaving

  • producers with small margins and little room for sudden shocks.

  • In 2019, the average price of live cattle was a dollar and 20 pounds,

  • while the average wholesale price was 2 dollars and 23 pounds.

  • That precise price gap has led to long standing conflict between

  • producers and processors.

  • Ranchers and packers have always not liked each other, particularly

  • the ranchers, basically not trusting and assuming that the packers

  • are manipulating market.

  • There is very little research evidence that supports that.

  • While the live side of the supply chain involves thousands of small

  • and medium sized businesses, the packers and processors are dominated

  • by four key players.

  • J.B.S. Tyson Foods, Cargill and Smithfield Foods.

  • They control 50 to 83 percent of supply depending on the animal.

  • In 2019 the industry revenue was 230 billion dollars, nearly twice

  • that of the live side.

  • It's a high cost capital business and also working capital as you're

  • buying livestock every day.

  • And so it's a very difficult thing just to start and be successful.

  • And that's just partly led to this, you know, high degree of

  • concentration because of how critical it is for the economies of

  • scale. And consequently, that's why we've got fewer and larger

  • clients. The meat industry has experienced two crises during the

  • coronavirus pandemic.

  • While dramatic the first was short lived.

  • Supply chains adjusted to restaurant and school closures and shifts

  • in consumer behavior within the first month.

  • More meat plants shutting down tonight as workers get sick

  • The second wave has exposed the meat processing plants vulnerability

  • to the virus in unimaginable ways.

  • To put in place guidance that these plants were taking to protect

  • their workers that haven't been done soon enough.

  • And so now we have the current problem.

  • The CDC states that nearly 5000 workers have contracted the virus and

  • 20 have died. But according to the Midwest Center for Investigative

  • Reporting, who used news reports, press releases, state data and

  • original reporting, the numbers are much more grim.

  • As of June 4th, at least 20,400 workers had tested positive and 74

  • had died. I think there are some legitimate issues relative to the

  • worker situation, particularly on the front end of this thing.

  • I'm not sure anybody really understood sort of how to be prepared.

  • These meatpacking plants, by their very nature, are extremely

  • difficult to manage a human disease like this.

  • Since early April, at least 48 processing plants have closed down

  • temporarily or indefinitely.

  • Compared to last year, production dropped by 34 percent for the week

  • ending May 2nd.

  • For some hog and chicken farmers, euthanasia was the last resort.

  • Many didn't have the space and putting on more fat decreases their

  • value. Cattle is more flexible when it comes to weight gain.

  • But for all animal producers, it boils down to economics.

  • They can only stand this for so long.

  • So they might they might go out of business or they may just get into

  • a sort of a financial hole that will take them perhaps years to

  • recover from. By May 1st, beef wholesale prices were up 67 percent

  • and live cattle was down 24 percent.

  • Pork wholesale prices increased by 100 percent.

  • There was a number of cattle that were coming through the system and

  • hogs to that were scheduled to be marketed at whatever price.

  • And then all of a sudden there's just basically no demand for some of

  • those cattle because the packing plants simply cannot process them.

  • And of course, at the same time, the cattle prices were going down

  • because the packers simply couldn't demand all the cattle that were

  • out there. That's what's got producers so upset right now.

  • They see their price going down at the same time, the meat prices

  • going up, and they think that means that something nefarious is going

  • on. And it's absolutely not it's because those marketing costs have

  • gone up dramatically.

  • And the supply and demand in the two markets are quite different

  • right now. On April 26, Tyson Foods CEO John Tyson took out a full

  • page ad in multiple newspapers warning the nation of a meat supply

  • shortage. He wrote, "The government bodies at the national state,

  • country and city levels must unite in a comprehensive, thoughtful and

  • productive way to allow our team members to work in safety without

  • fear, panic or worry." Two days later, President Trump signed an

  • executive order to invoke the Defense Production Act.

  • Now, the plants were deemed essential infrastructure and had to

  • remain open. More importantly, the order protected companies from

  • legal liability if workers got sick.

  • The industry praised him while the workers unions condemned his

  • decision. By the second week of May, prices started to bounce back as

  • more and more plants opened up.

  • As of June 4th, wholesale prices for cattle were 272 dollars and 26

  • cents per 100 pounds of cattle.

  • That's down 43 percent from May 12th.

  • Live cattle prices were 105 dollars, while live hog prices were still

  • lagging. These workers have to stay more spaced out in the plants.

  • That basically means you can't process as many cattle.

  • So the capacity, full capacity now is probably going to be maybe 90

  • percent of what it was before.

  • At least until this fall.

  • It's unclear if the worst is over for the meat supply chain or that

  • the coronavirus pandemic has exposed a fragile supply chain that will

  • require some serious adjustments.

  • One thing is for sure.

  • Having so much hinge on a few companies ability to get meat into

  • consumer's hands leaves the supply chain vulnerable in times like

  • these. It remains to be seen whether it's the right decision to open

  • many of the plants. Whenever you have a big labor challenge and it

  • drives up the costs of maintaining a labor force or it causes supply

  • chain, just disruptions.

  • You see automation.

  • If you go to McDonald's now, you can order from a person or you can

  • order from a board. Could you see the same thing in large scale

  • processing? Absolutely.

  • In the meantime, alternative meats are having a surgeon's despite

  • their higher price point.

  • Between mid-March and the end of May, the beyond meat stock price

  • increased by more than 130 percent.

  • Sales of fresh meat alternatives grew by more than 250 percent for

  • the 11 week period, ending May 16th.

  • Even before the pandemic, experts recognized huge potential in the

  • alternative meat industry.

  • Ultimately, it all depends on how our lives and the economy recovers.

  • If unemployment continues to rise or even lags for years, people will

  • trade down from more expensive to cheaper cuts of meat, perhaps less

  • meat altogether. Is this a once in a century event?

  • Should we respond accordingly?

  • Or is this something that we need to adapt to going forward because

  • it's going to be with us if we think it's going to be with us.

  • And yeah, it's a pretty fragile supply chain, mainly because we've

  • we've focused on giving consumers what they want, high quality food

  • at the cheapest price possible.

  • If we were to back away from that and make it a little bit, maybe

  • more robust supply chain, maybe a little bit smaller processors, it's

  • going to cost consumers a little bit more.

  • So there's a tradeoff there.

  • Hopefully that, you know, the stress that was on the sector, at least

  • we've got some release valve now that processing facilities are

  • moving again. There have been a number of large packing plants that

  • haven't had to close during this time.

  • There's no guarantee that their workers won't become ill.

  • But hopefully we've learned through this process and been able to get

  • us on a more positive path.

Should people expect shortages or price increases for certain meats in

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B1 US meat cattle percent supply supply chain chain

Why The U.S. Almost Ran Out Of Meat

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    joey joey posted on 2021/04/22
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