A Few Thoughts by John Nalivka: Short term disruptions don’t spell long term meat shortages
Plant closings and slowdowns are major symptoms of meat and poultry industry disruption as the result of COVID-19. In addition to slaughtering and processing livestock and poultry, also critical to the supply chain are distribution and livestock production. The meat industry requires all parts to be running smoothly. To say that the industry has been disrupted might be an understatement. A more ample description might be akin to putting red meat supply and demand in a blender on high speed. We are now anxiously awaiting to having that blender shut off!
It will likely take several months to get all of the supply and demand components back to what might be considered “normal”, but a meat shortage is not likely. We will still produce about 100 billion pounds of total red meat and poultry this year with well over 27 billion pounds of beef and 29 billion pounds of pork – both records. This is why exports have been so critical.
Currently, 7% of fed cattle capacity is not operating and one plant accounting for another 4% was reduced to one shift in a production slowdown. Cow slaughter was reduced 5% with operations temporarily ceased for 2 weeks at a major cow plant and a processing plant was closed. A major pork plant was closed indefinitely and one temporarily – together accounting for 6% of total capacity. Packer capacity is largely a regional issue and when a plant closes, the immediate impact is on the feedlots shipping cattle to that plant or a hog producer shipping hogs to a regional plant. In the numbers, we see that impact in the weekly slaughter which is down sharply.
Once, we get COVID-19 safely behind us, get supply chains (beginning with the packers) back to some semblance of normal, and create the opportunity to reopen the economy, the dynamics will change. There are plenty of cattle and weights will increase with the current slowdown with packers, so production will ultimately prove to be ample and not short as would seem to the case currently. Again, all parts have to be up and running – smoothly.
On the demand side, it will take some time to get things going again once we do have COVID-19 behind us. It may be obvious, but it will take customers to once again sit down in restaurants. This is significant consumer demand and for most restaurants, it will take time to get people back. The blender has shaken things up with regard to behavior. Some behaviors will likely not return to the way “things used to be.” And, there is the issue of how much meat have people put in the freezer and the really critical issue of money. People have to get back to work and I am not sure what that will look like initially. To say this has created economic havoc on many people’s lives would be an understatement and it will likely be year-end before things are almost normal.
Yes, I agree – the supply side of the beef market equation is setting up for a replay of 2014-2015 with record cattle prices. The positive shift in beef demand over the past decade, would…
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