Fire shuts down KS Tyson plant, prices dive downward
for The Fence Post
Although Tyson has announced they will rebuild the beef harvesting facility in Holcomb, Kansas, the shuttering of the plant after a fire on August 9 caused disruption in the market to the tune of limit down on Monday and Tuesday.
“It’s a disaster. This is our tsunami,” said Herreid, South Dakota cattle feeder Herman Schumacher.
Recalling specific moments throughout history when the market crashed – Nixon’s 1973 beef “freeze,” the 1986 dairy buyout and the 2003 BSE cow – Schumacher said there was a common element each time the market fell apart. Beef got cheaper for the consumer. “The product reflected the cattle market,” Schumacher said.
Last week’s activity didn’t follow suit – according to Schumacher, the reported price for a choice carcass went up almost $200 per carcass while the active bidding for a finished steer went from about $1.84 per pound “in the beef” to about $1.70 per pound, or a drop of about $130 per head.
Tyson, the largest employer in Finney County, an area known for cattle feeding, has committed to pay fulltime, active employees weekly until the plant resumes work. The plant employs approximately 3,800 people, and has the capacity to process about 6,000 head per day. In a press release, the company said they will rebuild in the same location and work to clear debris has begun, though a timeline is not yet known.
Schumacher said his Tyson buyer bid 2-4 dollars per hundred weight lower than other regional buyers just before the fire, which he believes meant that Tyson had enough cattle secured for the week. “I call that a bid not to buy,” said Schumacher.
He said the Tyson buyer told him the plant would be down at least 60-90 days but that the coolers were not damaged. “He said he wouldn’t be bidding for a couple weeks, up to a month. He was guessing they would set up their kills in other plants,” said Schumacher, but that processing could continue in the Holcomb plant.
According to Cattle Fax analysis, the fire will potentially be remembered as other major challenges facing the industry have been. The company anticipates a significant level of price correction. The plant represents about 26 percent of daily slaughter in the state and about six percent of the total of U.S. fed cattle packing.
In a news release, Steve Stouffer, group president of Tyson Fresh Meats, said steps are being taken to move production to other sites.
“Tyson Foods has built in some redundancy to handle situations like these and we will use other plants within our network to help keep our supply chain full,” he said.
Katelyn McCullock, Director of the Livestock Marketing Information Center, said the fire is expected to have an impact on the fall fed cattle market as all cattle scheduled for delivery to the plant need a new destination, and all cattle that would have been sent to Holcomb as they became ready for market, will also be harvested elsewhere.
“From a capacity standpoint, I would say we were tight enough this will have an impact so how we get those cattle to market and where they go is going to be a challenge unfolding into the late third and fourth quarter,” she said.
McCullock said the fed cattle and feeder markets reacted to the news Monday and she admits that the disruption will be difficult for cattle producers preparing to ship cattle in the fall. With no timeline for the plant to return to production, she said the impact is likely to be long-term, prompting the marketing of heavier cattle.
“It takes a long time to add capacity, from a general standpoint, so cattle weights backing up is really something you could only do in the short term,” she said. “Backing up the cattle weights would essentially just defer the problem until those cattle come to market.”
The price impact from the loss of capacity is large and high enough, she said, that holding cattle back will not be able to offset that. The adjustment period for the market is yet unknown, making a go-to marketing strategy to deal with the uncertainty simply being nimble and being prepared for what the coming months will present. Consumers, however, will see little price impact immediately, with about just under 400 million pounds of beef in cold storage, primarily in bulk beef.
“I think you’ll see some tightening on the muscle cut side, which you should see some price appreciation,” she said. “I’m not sure on the timeline of when that would hit the consumer at the supermarket but there is going to be a supply side implication with the magnitude. How much of that gets passed on to the consumer, is still an unknown.”
Dr. Stephen Koontz, an economist in the Colorado State University Department of Agricultural and Resource Economics, said he anticipates that there “will be more than a modest degree of panic as the largest annual supplies are moved around temporally and spacially.” While the inventory of cattle is clear, the impact, he said, of the disruption on planning and orderly marketing is not. He anticipates ongoing market downturns, though the ramifications are difficult to predict as such an event hasn’t occurred previously.
“Prices have to search around a little to find where things are going to work,” he said. “I would not be surprised if things move down a little further, but not as dramatically as the past couple of days.”
With cattle set to hit the market in October, he admits the timing of the fire and closure couldn’t be worse, nothing that’s news to producers. The plant harvests about six percent of U.S. cattle, a number that may sound small but Koontz said is a huge number, especially considering the location of the plant.
“That western Kansas plant really connects the dots between the Texas High Plains on up to Nebraska, so that’s a really important plant,” he said. “If they don’t go there, they have a long way to go.”
Other plants, he said, aren’t running at wide open capacity but are close, and face the challenge of securing labor to absorb additional capacity, especially on Saturdays.
Koontz anticipates consumers will see little price change at the meat case.
“This is really a capacity bind at the packing level,” he said. “It’s going to take a little production out of the system, if you look at packer margins, they’ve been excellent. They need to be excellent, they’ve been running on Saturday and people don’t like working on Saturday. They will, but you have to pay them extra.”
Retailers, also, he said, have enjoyed good margins, so there is cushion to absorb this on the retail side. The bottom line is the additional freight costs comes off the side of the live cattle, leaving producers with the tab.
Moving forward, Koontz said the weekly slaughter numbers and the slaughter weights, a reflection of the season and whether they are held over, will gauge production.
“We’ll see how well business relationships hold up because the problem was clearly in Tyson’s ballpark,” he said. “We’ll see how much of the freight they’re willing to eat to try to maintain the really strong business relations they have with the feeding side. This is going to be important, it’s a matter of how long it is going to last.”