Meat plants operating at 60%; 400,000 hogs per week backing up
Tyson closes largest pork plant after Iowa COVID-19 outbreak
Tyson Foods suspended operations at its plant in Waterloo, Iowa, today after 180 COVID-19 infections were linked to the plant, the Associated Press reported.
The plant employs 2,800 workers and can process 19,500 hogs per day, accounting for 3.9% of U.S. pork processing capacity, according to the National Pork Board, the AP said.
U.S. meat plants are operating at only 60 percent of normal capacity while 400,000 hogs per week are backing up, the head of the Commodity Futures Trading Commission’s Livestock Market Task Force looking out for market manipulation amid the coronavirus said today.
Dave Amato, an economist in the CFTC’s Division of Market Oversight who has been appointed by CFTC Chairman Heath Tarbert to head the task force, told the CFTC’s Agricultural Advisory Committee, “The market is reacting the way we would expect.” He added, “These are definitely strange times.”
Packing plants have become “the most significant hot spots for COVID-19,” Amato noted, hours after Tyson Foods closed a plant in Waterloo, Iowa, after more than 180 cases of COVID-19 were linked to the plant. (See following story.)
About 8% of U.S. meat packing capacity is “off line,” with most plants operating at only 50% to 75% of normal production due to employee absenteeism, resulting in the industry operating at only 60% of normal capacity, he said.
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Pork plants normally process 2.5 million hogs per week, but with the virus that is reduced to about 2.1 million hogs per week, leaving 400,000 hogs per week backing up, Amato said.
“There are some things you can do to mediate that, but at the end of the day if you have that many hogs with no home to find, we are probably going to see some euthanization as well,” he added.
At the same time, about 8% of milk is being dumped, and poultry producers are getting letters from processors urging them to kill chickens, he said.
“This is the Holcomb fire times 10 or 15 or 20 because of the number of plants that are at stake and the states that are involved and number of workers who are out,” Amato said, referring to the fire last year in a Tyson’s plant in Kansas that could kill 6,000 cattle per day and had to be shuttered.
Amato said it’s unclear whether plants will be on line next month or whether they will be off plane. If plants are not slaughtering animals, Amato said, it is possible that cash and futures prices will continue their downward slide while boxed beef prices rise because there is “less and less product moving through the system.” Markets are so volatile, Amato said, that investors are shying away from the futures market out of both fear and uncertainty.
After the Holcomb plant shut down, cattle prices went so low that ranchers charged market manipulation. The Agriculture Department’s Packers and Stockyards division is still investigating the Holcomb situation. At the beginning of the COVID-19 crisis, while consumers stormed stores to buy meat, cattle prices were so low that ranchers again charged manipulation, and Agriculture Secretary Sonny Perdue added an investigation of those market conditions to the Holcomb investigation.
Derek Sammann, the global head of Commodities & Options Products for the CME Group, told the committee, which met virtually, that, while market participants were upset by the wide variation between cattle spot prices and futures prices, the market reacted appropriately because investors were pricing in the impact of closed food service outlets, the potential for additional shelter-in-place orders and the possibility that COVID-19 might shut down processing plants – all factors which have come to pass.
“The measure of the effectiveness of a futures contract is not if a futures contract matches today’s spot price, which it rarely will in volatile prices and uncertain markets. Instead, it is how effectively it enables the convergence between the futures and the cash price by the end of the delivery period,” Sammann said.
Asked whether agricultural futures might follow oil futures prices and go into negative territory, Sammann said that is very unlikely because oil prices decreased so much out of fears that the United States was running out of oil storage capacity, and agricultural commodities are easier to store. Hog prices would move into negative territory only if all the slaughter capacity in the country were shut down, he said.
Tarbert told the committee, “Our market analysts are watching for any indication that prices are moving in an uneconomic manner relative to the underlying commodity’s cash prices. Specifically, we are monitoring to see if, for example, traders are attempting to manipulate futures prices through disruptions caused by supply and demand shocks.”
Tarbert also announced that he will soon appoint a CFTC liaison to the Agriculture Department for the first time in the CFTC’s 45 years of existence. He noted that the original Commodity Exchange Act requires that the USDA appoint a liaison officer for purposes of maintaining a connection between the USDA and the CFTC.
“Reciprocating with our own liaison will ensure robust dialogue and continued coordination regarding matters of mutual interest,” Tarbert said.
Perdue also told the committee about the Trump administration’s various efforts to address the coronavirus pandemic and pledged to monitor the food supply and markets from “farm to table.”
–The Hagstrom Report
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