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‘Significant’ market impacts expected after Tyson fire

Extent of impact will depend on how long it takes to get plant back to full production.

Feeder and fed cattle are both kind of in the same boat right now, coasting before Labor Day, Oklahoma State University Extension livestock marketing specialist Derrell Peel said this week.

“We’re in the dog days of summer, and I think these markets are trying to just kind of hang on here for at least another two to three weeks at least until we get to where we can kind of think about fall markets as opposed to these summer markets,” he said.

Still, if you look at the seasonal patterns historically, Peel said there is plenty of opportunity for this market to have a seasonal low as the calendar marches towards Labor Day.

“It’s kind of a matter of trying to hang on,” he said, adding that the market does appear to be consolidating a bit.

However, the sector was dealt a blow this week after a Tyson Foods beef plant in Kansas burned, causing it to close indefinitely. Tyson has said it will rebuild.

“Obviously, there will be some fairly pronounced initial reactions, I would expect,” Peel said. “Some of that just stems from the uncertainty of sort of knowing where we are and how long this thing might last and exactly what the path back from this will be.”

Nevertheless, losing 4-5% of U.S. slaughter capacity will disrupt boxed beef supplies, Peel said, adding, “That will begin to show up.”

Steiner Consulting Group (SCG), in CME Group’s “Daily Livestock Report,” noted that the short-term effect is less beef available in the market.

“End users that normally would get product from this plant now will be serviced by other plants, but that will limit supplies in the spot market. Higher prices will be necessary to either ration out some demand or cause other packers to run extra shifts,” the group relayed.

Additionally, SCG said supplies in the spot market will likely be “very tight,” which normally results bidding wars.

With retailers gearing up for Labor Day promotions, the Choice beef cutout has been trending higher, SCG noted, adding that the plant fire will likely cause prices to advance further.

The fire also happened at a time when cattle need to be slaughtered in a timely fashion, Peel explained. As such, the industry may have to do some shuffling around.

“Fortunately, there are at least a couple of other major beef plants not far from there,” he said.

If cattle do get delayed a little bit in terms of reaching slaughter, Peel said weights could increase, which will affect supply.

“There’ll be a significant number of impacts across the board in fed cattle markets and boxed beef markets this week,” he said, adding that longer term, it is basically a wait-and-see situation.

SCG suggested that the impact on fed cattle prices generally will be negative, although the extent of the impact will depend greatly on how long it takes to bring this plant back to full production.

According to SCG, feedlot operators have a bit more flexibility than what hog operations would have, but the effect could still quickly increase the longer the plant stays out of commission, especially if it requires an adjustment to the flow of cattle through the entire supply chain.

“For that to happen, higher prices will be needed at the consumer level and lower prices at the producer level,” SCG said.

Colorado State University agricultural economist Stephen Koontz said the fire’s impact on fed cattle markets will be substantial. 

“The market is in the middle of the third quarter: Supplies are heaviest, slaughter weights are ramping up and competing meat supplies will begin their fall increase. This is the quarter with the highest volume of beef supplies, and forecasts are for sustained supplies into the fourth quarter,” he said.

While the disruption occurred in the southern Plains, Koontz said it will spill over nationally.

“I anticipate that there will be more than a modest degree of panic as the largest annual supplies are moved around temporally and spatially,” he said. “The rest of this month will be difficult, and there is the potential for the disruption and accompanying volatility to continue into much of the fall.”

Market recap

October live cattle futures contracts posted large losses this week, following news of the Tyson beef plant fire. Contracts closed lower Monday at $103.75/cwt., fell to $98.50/cwt. by Wednesday’s close and finished higher Thursday after a day of more losses, ending at $98.25/cwt.

Large losses ensued for September feeder cattle futures as well, with contracts closing lower Monday at $133.95/cwt. and Tuesday at $127.20/cwt. However, some of the losses were recovered as the week progressed, and contracts closed higher Thursday at $133.30/cwt.

Beef cutout prices rose as a result of the fire, with the Choice and Select cutouts both closing sharply higher Thursday at $236.12/cwt. and $210.67/cwt., respectively.

October lean hog futures were mixed but mostly lower. Contracts closed Monday at $67.075/cwt. and Thursday at $63.75/cwt.

The pork cutout was mostly lower this week, with the wholesale pork cutout closing at $88.23/cwt. Loins and hams were lower at $74.04/cwt. and $73.53/cwt. Bellies continued to rally higher, closing at $175.53/cwt.

Hogs delivered to the western Corn Belt were only slightly higher, closing Thursday at $72.70/cwt.

The U.S. Department of Agriculture reported the Eastern Region whole broiler/fryer weighted average price on Aug. 9 at 84.17 cents/lb.

According to USDA, egg prices were steady, with a higher undertone. Offerings were light to, at times, moderate. Demand was moderate to good.

Large eggs delivered to the Northeast were higher at 58-62 cents/doz. Prices in the Southeast and Midwest were also higher at 58-61 cents/doz. and 50-53 cents/doz., respectively. Large eggs delivered to California were $1.11/doz.

For turkeys, USDA said the market was steady to firm, and demand was light to moderate. The price range for hens and toms was unchanged, at 85-95 cents/lb.

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