IssuesConsumer Beef Prices Rise, Cattle Prices Drop As Supply Chain Hits ‘Logjam’

Consumers will see a price increase for beef at the grocery store as the supply chain has been encumbered by the pandemic.
June 5, 2020
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America’s supply chains have played a significant role in the economic successes of the last 10 years. It is the ability to get a product from point A to point B to point C that turns the pistons of the American economic engine.

But with the massive wrench of a pandemic that has been thrown into the mix, many of those supply chains have slowed or jerked to a halt entirely.

Milk producers were forced to dump some of their supply a short time ago and Texas oil has faltered, each instance due to a downswing in demand. The beef industry is experiencing a similar, but still different, squeezing of its supply chain. This has caused the beef retail price to increase, up 26 percent in April, and cattle prices to decrease.

The United States Department of Agriculture’s (USDA) end-of-May market analysis, however, points to a positive trend, though still nowhere near pre-pandemic levels.

This particular section of the agriculture industry has been pressed by both a drop in commercial consumption — just like the dairy was — and coronavirus-triggered plant shutdowns as many became hotbeds of the virus, such as JBS Beef in Amarillo.

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The supply chain has a few different stops along the way. First, calves are raised on a ranch until they are between 800 and 1,000 lbs. From there, they’re taken to a feedyard that holds them until they reach about 1,300 lbs and are ready for slaughter. In the processing plant, the cattle are slaughtered, drained, and butchered.

After all that, the beef is packaged and ready for distribution to whichever consumer sector it is headed.

The feedyards have experienced a backlog due to the plant shutdowns with fewer places to send their cattle ready for slaughter. This caused a backward pressure on the ranches supplying the calves.

In addition, the plants themselves have lost an outlet for their beef product due to restaurant closures — which is, notably, beginning to recuperate as the state reopens.

But that rejuvenation is not an immediate process.

So, the beef market has a downward force on cattle prices because of the drop in demand from the feedyards, and an upward force on consumer process because of the waning supply.

It’s one big logjam which will take some time to undo.

“Texas cattlemen have a long road ahead of them,” said Tracy Tomascik, associate director of the Texas Farm Bureau’s Commodity & Regulatory Activities division of Government Affairs.

Like many industries, Texas cattlemen operate on a slim profit margin and so the effects of the hit taken by the industry are being felt harshly.

One silver lining Tomascik pointed to was that the Texas weather has been good thus far in 2020 — and because of that, grass is still plentiful. Grass is the main feed source for cattle and thus the cost for supplemental feed, such as hay, cottonseed and soybean meal, or dry grain from distilleries, has not affected prices more than usual.

Providing some alleviation to the backlog, this also allows the raisers to hold the cattle for longer than they would have where they otherwise would’ve had to send them to the feedyard.

But once it stops raining, as it usually does during Texas summers, Tomascik is worried the backlog from ranch to feedyard will continue.

The price for cattle is about 15 to 30 percent lower than the five-year average, Tomascik explained, which is about $1.45 per lbs.

This means farmgate income is down for the cattle raisers.

“Cattle producers have suffered greatly as market turmoil and packing plant slowdowns led to a sharp decline in cattle prices. It’s always hard to stomach those losses, especially while watching beef prices climb,” Robert McKnight, Jr., president of the Texas and Southwestern Cattle Raisers Association, told The Texan.

“At the Texas and Southwestern Cattle Raisers Association, we’re working harder than ever to mitigate the impact on ranchers and better our ability to survive the next storm that comes our way. Rest assured, Texas cattle producers are still at work, producing high-quality beef to feed our country.”

Today, the Bureau of Labor Statistics revealed that the U.S. added 2.5 million jobs in May and while he couldn’t say definitively, Tomascik said that indicates some improvement may lie ahead.

Like many aspects of our economy, specialization within the industry is vital to its success. Specialization is the process by which some producer focuses on one area, or even one product, in order to maximize efficiency of time, labor, and cost. This can be observed at an international level, but also right down to the individual.

While specialization facilitates market efficiency in a way those making everything they need for sustenance could never dream — one man spent six months and $1,500 just to make himself a chicken sandwich — it can be risky for individual sectors or producers if their specialty product is disrupted in some way.

Tomascik thinks this will cause some cattlemen, if it hasn’t already, to diversify their herds a bit.

While it may be a rough road ahead, Tomascik is optimistic about “Seeing some light at the end of the tunnel,” for Texas’ beef industry.

McKnight shares that optimism as the live cattle and beef cutout prices are beginning to turn back toward one another.

The other question, which applies to all industries, is whether consumers will continue to steer clear of public places, such as restaurants, as governments allow more reopenings.

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Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.