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The cattle business is nearing a cataclysmic change that will overshadow the conversion to boxed beef that riled the industry half a century ago.

Chuck Jolley

April 19, 2020

8 Min Read
COVID-19 stands to forever change cattle industry

In San Antonio, 10,000 cars lined up one morning, each awaiting baskets of food from a food pantry. In Denver, supermarket shelves were stripped of eggs, milk, meat and poultry. Signs warned shoppers that 'one package per customer' was their buying limit. A dairy farmer near Madison, Wis., was pouring his morning milking down the drain. Hog farmers and cattle ranchers in the Dakotas, Iowa, Nebraska and Kansas were worried about where they could sell their animals after Smithfield and JBS began shutting down their plants.

Tens of thousands of acres of crops – tomatoes, fruits, vegetables – are left to rot in the fields or plowed under by farmers who suddenly have no market.

Food shortages on one hand; tons of food discarded on the other? What the hell is going on?

First, an assurance that all is almost well. "I want to assure you that American food supply is strong, resilient and safe," secretary of agriculture Sonny Perdue said in a press conference, "In the U.S., we have plenty of food for all of our citizens."

Yes, we produce more than enough for our consumer needs, but quantity is not the problem. Getting it from the fields to the consumer is the problem and that's where our distribution system fails.

The American food supply chain isn't designed to be nimble. Although it is a marvelous example of efficiency under normal market conditions, it is not capable of turning on a dime when circumstances suddenly become abnormal. The distribution system is designed around a customer base that is split between supplying food service (hotels, restaurants and institutions) and retail (supermarkets). When almost half that dual marketplace is seriously disturbed, the system staggers toward failure.

Think of the distribution system as a high-speed train roaring down the line. It operates smoothly, gets to where it's going quickly and carries a vast amount of product. Stopping or starting is the problem. The front end starts, the caboose lurches forward later as car after car gets tugged along. When the engine begins to stop, dozens, maybe hundreds, of cars bump into each other as things slowly grind to a halt.

Every crop is harvested on a carefully managed schedule. Fruits, vegetables, cattle and hogs cannot wait for several weeks or longer for closed markets to hopefully rebound or still-existing markets to figure out a way to absorb an overwhelming and unanticipated abundance of new product. They can't wait for distributors, used to dealing with the same customers requiring predictable volumes, to realign their businesses.

It's animal ag that's taking a broadside hit, a barrage of bad news that should have never happened. Smithfield announced the closure of its giant Sioux Falls hog plant followed by downstream facilities that processed some of that plant's output. The most immediate was probably its Martin City, Mo., plant that processed hams, which will close indefinitely. The company’s Cudahy, Wis., dry sausage and bacon plant will close for at least two weeks.

Making an after-the-horse-left-the-barn statement, Kenneth Sullivan, Smithfield's president and CEO said the closure of such facilities is "pushing our country perilously close to the edge in terms of our meat supply" and will have repercussions for the farmers who depend on them.

"It is impossible to keep our grocery stores stocked if our plants are not running. These facility closures will also have severe, perhaps disastrous, repercussions for many in the supply chain, first and foremost our nation's livestock farmers. These farmers have nowhere to send their animals," Sullivan said.

Sullivan should have paid more attention to the conditions that lead to the spread of COVID-19. Comparing those to large plants like Sioux Falls should have been an "uh oh" moment for him. Allowing thousands of workers to stand elbow-to-elbow for an eight hour shift without proper protection? Not checking employee health before each shift? Giving them poor or no health care coverage? Smithfield had designed the perfect, well-inoculated petri dish for the rapid spread of the virus.

Early reports suggested as many as 300 employees were infected. That figure steadily grew to more than 600. It includes only employees; uncounted are the thousands of family members who are at risk.

The plant-by-platnt 'beatdown' continued when the Washington Post reported JBS USA closed its Souderton, Pa., beef plant April 7 and then ended production at its Greeley, Co., beef facility "after at least 50 of its 6,000 plant employees tested positive."

The Washington Post also noted that National Beef Packing Co. closed its Tama, Iowa, facility and Cargill shuttered its Hazleton, Pa., ground beef and pork processing plant and reduced production at one of Canada's biggest beef-packing plants after dozens of workers became infected. The net loss of North American meat industry output might be as high as 25%, according to some estimates. Shifting production to other plants should eventually make up for a significant portion of that shortfall.

Defending Smithfield's weak approach to safety, Julie Anna Potts, the North American Meat Institute's president and CEO claimed, "The plants are doing everything in their power to diminish the spread of the virus and stay open in order to support the food supply, so the onus now falls on local officials to better enforce social distancing in the communities outside the plants."

Sorry, enforcing social distancing in the lunchroom and them asking employees to stand shoulder-to-shoulder during working hours is a long way from 'doing everything in their power.' Asking local officials to step in and enforce social distancing outside the plants is asking them to step inside those plants and enforce rules to assure the public that every employee has at least 6 ft. of clearance.

Regardless of the packing industry actions, animal agriculture is being overrun by changes that have never been seen, not even by the crash-and-burn of the 1980s or the Great Depression that decimated it 50 years earlier.

Debbie Bacon, 'the boss' at Arkansas' Bacon Cattle & Sheep, one of the better-managed small producers, has some issues with the current disturbed state of the industry. "For the cattle I sell that go into the meat case/food service ultimately it's going to be a struggle at best," she warned. "I'm very concerned about what our loss is going to be in light of all things COVID-19. I think folks are going to take a hard look at numbers and determine if they are better off to cut their losses now or hold on to and breed more cows in the future.

“We have already completed breeding season for our fall calvers. We are finishing up spring calving right now across the country and getting ready to rebreed the cows that produce the cattle that come off at peak prices, usually both as feeders and feds. For us personally we are going to look long and hard at those cows on the bottom end in terms of production as in weaning weight of calf produced and cull accordingly. I think with this and the packer monopoly combined, it will be a long time before we rebound," said Bacon.

A new National Cattlemen’s Beef Assn. (NCBA) funded study conducted by Derrell Peel, Breedlove professor of agribusiness and extension livestock marketing specialist at Oklahoma State University, underscores Bacon's fears. It showed cow-calf producers will see significant COVID-19-related losses totaling an estimated $3.7 billion, or $111.91 per head for each mature breeding animal in the U.S. Worse, without federal relief payments, those losses could increase to $135.24 per mature breeding animal, for an additional impact totaling $4.45 billion in the coming years.

More bad news from the study: Stocker/backgrounder segment losses were estimated at $159.98 per head, for a total economic impact of $2.5 billion in 2020, while feeding sector losses were estimated at $3.0 billion, or $205.96 per head.

The U.S. Cattlemen's Assn. (USCA) also commissioned an analysis, compiled by Brett Crosby of Custom Ag Solutions and BeefBasis.com. Using existing market data and futures market data, the total actual and future losses were much more substantial. It suggested market damage caused by the virus could exceed $14.6 billion. The analysis focused on three primary sectors of the cattle production chain: feedlot, backgrounding and cow/calf.Est_20COVID-19_20effect.png

"The impact of the COVID-19 pandemic on the U.S. cattle industry cannot be overstated," said USCA president Brooke Miller. "This report highlights just how severe those losses will be. Specifically, Mr. Crosby's report breaks out the steer and heifer price forecasts, differentiates between spring and fall calves, and values stocker calves by marketing date rather than weight to account for the effect on operations that run grass calves and market in August."

Bottom line: Even with unprecedented government assistance, the cattle business is nearing a cataclysmic change that will overshadow the conversion to boxed beef that riled the industry half a century ago.  Look for further consolidation, too, as small- to medium-sized players find it increasingly challenging to stay the course. Downstream, as packers struggle to make sense of a radically changed market, maybe the big four becomes the big three and morphs into the big two?

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