John Nalivka: Will we see remarkable change in the beef industry
I started to write a few thoughts about the current bottleneck in the packing-processing sector of the beef industry and what that portends going forward with regard to the market. I reread my article for April 18 and realized that my comments today would be about the same as those I made three weeks ago. At least in my analysis of that situation, there is some consistency in this volatile time. One statement in that regard – the “meat shortage” is short term until we get plants back to some semblance of normal operations. And, I do realize that won’t be a simple turn the switch on situation. Secondly, the available cattle supply didn’t go anywhere and they are still gaining.
One conversation that I have had repeatedly since mid-April is how much the industry will change as a result of coronavirus. And, I have probably written about that as well. If I have, the article is not jumping out at me right now. To begin, there is a disparity in prices across the supply chain. I have been in the discussion many times over the past several weeks. In these unprecedented times, I am not sure if anyone can reconcile much of the pricing in the market. I certainly can’t provide a very good explanation of the basis between live cattle futures and market fundamentals. I would offer one comment regarding how to “fix” the market – be careful what you wish for.
Going back to what will change with the supply chain in terms of operations – at least in the short term, I would expect that COVID-19 protocol will remain in place in packing plants. The question becomes whether higher costs associated with production slowdowns can be accommodated over the long term. The short answer is no, but there will be permanent change whatever that might entail.
For ranchers and cowherds – I believe there are a couple of important lessons toward risk management going forward in the face of the issues brought on by coronavirus. I have remarked more than once but, ranchers have to move ahead of this current market environment and think about how to generate the most value from this year’s calf crop while at the same time, doing a complete cost analysis of your operation. You have probably heard that a hundred times, but at the end of the day you still know more about your managing your business than the Congress and government agencies.
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As I have been thinking about the Biden Administration’s plan to “fix” the meat packing / processing industry so that “farmers” can receive a “fair” price and be profitable, I have come to the conclusion…