Packing plant fire disruptions fading, Part 1 and Part 2

The fire on August 8, 2019 at the Tyson Finney County, Kansas packing plant caused huge disruptions in markets like a big rock thrown into a pond.  With seven weeks passed since then the impacts and resulting ripple effects are clearer now and are fading as expected.  This article will explore slaughter patterns and totals after the fire.  Hopefully this will help clear up some of the incorrect slaughter numbers reported in some media shortly after the fire.

Despite the loss of roughly five percent of steer and heifer slaughter capacity, the packing industry has done a remarkable job of maintaining yearling slaughter while total industry capacity is pushed very near to the limit.  In the week after the fire, Monday-Friday yearling slaughter was down 4.6 percent (a decrease of 22,158 head) but a large Saturday kill resulted in a weekly total slaughter down just 1002 head from the pre-fire week, a decrease of 0.6 percent.  In the second week after the fire, weekday slaughter was down 3.8 percent (18,345 head decrease), but a large Saturday kill brought the weekly total up for an increase of 2,423 head compared to the week prior to the fire.  In week 3 after the fire, weekday steer and heifer slaughter was down 11,511 head, 2.4 percent lower, compared to the pre-fire total; but once again a large Saturday total made the weekly yearling slaughter total only 175 head less than the week prior to the fire.

Pre- and post-fire comparisons are less meaningful as more time passes due to the normal course of markets.  Comparing an October market to an August market is not helpful.  Year over year comparisons show the same pattern after the fire.  In the four weeks after the fire, weekday steer and heifer slaughter was down every week compared to the previous year with a range from 0.4 percent less to 2.9 percent less and an average decrease of 2.0 percent.  However, Saturday slaughter totals were up anywhere from 14.4 percent to 54.6 percent weekly, with an average 22.3 percent higher year over year in the four weeks after the fire.   In total, steer and heifer slaughter in the four weeks after the fire was 2,016,178 head, an increase year over year of 12,562 head (up 0.6 percent).  This was accomplished as a result of considerable logistical contortions and extra cost, including big Saturday kills and rerouting cattle to other plants farther away.

Unlike milk markets, where disruption in processing often results in milk being dumped, it is clear that no significant back up of finished cattle occurred despite the squeeze on packing capacity after the fire.  Any significant backlog of more than 2 million head of slaughter-ready cattle would have pushed carcass weights up. However, in the four weeks after the fire, both steer and heifer carcass weights were down 4.25 pounds year over year, close to the year to date decreases of 4.97 pounds for steers and 5.46 pounds for heifers. Steer and heifer carcass weights are currently increasing to a seasonal peak, typically in October or November.  In the latest data, steer carcass weights were 891 pounds, down 5 pounds from last year while heifer carcass weights were 811 pounds, even with one year ago.

The risk going forward is whether the packing industry can continue to hold slaughter rates high through the end of the year under emergency conditions.  Large Saturday kills are not only more costly but cannot be maintained indefinitely.  There will continue to be stresses on fed cattle demand and flows of cattle to slaughter until the damaged plant returns to operation.  The next article will look at price disruptions and recovery in boxed beef and cattle markets.


Packing plant fire disruptions fading, Part 2

The August 8, 2019 fire that shut down the Tyson beef packing plant in Finney County, Kansas provoked significant reactions in cattle and beef markets.  Markets typically provide strong price responses to a shock such as this in order to initiate actions that repair the market disruption.

The fire caused an immediate loss of fresh beef product into wholesale beef markets which left a variety of beef buyers scrambling to find product and for Tyson to meet contractual obligations.  As a result spot boxed beef prices jumped sharply the first week after the fire and peaked the second week after the fire before starting to recede.   Choice boxed beef cutout values increased from a weekly average of $216.04.cwt. the week before the fire to a peak of $239.87/cwt, two weeks after the fire.  By the last week of September, Choice boxed beef price dropped to $214.51 and has since dropped seasonally lower into early October.  Prices for all beef primals increased though the jump was quicker and more sustained for the end meats (chuck and round) compared to the middle meats.  In part this is due to the normal seasonality of the products, with ribs and lions typically weakening from August into September while the approach of roast and crock pot season pushes chucks and rounds higher.  By one month after the fire, noticeable effects of the fire were mostly absent from boxed beef markets.

Cattle futures markets reacted most dramatically to the fire, which is exactly the role of futures.  Both live and feeder futures gapped limit down for two days following the fire.  Both markets continued lower until after Labor Day before beginning a sharp recovery which rose to fill the down gaps by the end of September.

Cash feeder cattle markets dropped initially after the fire on the uncertainty about long term impacts on cattle markets.  Lightweight feeder cattle prices showed variable recovery through September ending below pre-fire levels on normal seasonal pressure.  Stocker cattle prices are steady to higher from September into early October with wheat pasture demand and other market fundamentals driving the market.   Heavy feeder prices dropped sharply the week after the fire with recovery beginning by the second week after the fire.  By late September heavy feeder prices had recovered to exceed pre-fire levels.

Fed cattle prices took the biggest hit after the fire, as expected, with the sudden loss of packing capacity.  Fed prices dropped from $112.37/cwt. the week before the fire to $106.68 the first week after the fire.  Feedlots and packing plants resorted to significant logistical contortions to reroute cattle to other facilities, a process that continues.  Cash fed cattle prices ultimately bottomed five weeks after the fire at $100.07/cwt before beginning recovery.  By the first week of October, fed cattle prices were at $107.12/cwt.  Fed prices typically reach a seasonal low in September and are lower in October compared to August. Limited packing capacity will likely continue to restrict fed cattle prices somewhat but it appears the industry has thus far avoided even worse implications of a serious backlog of fed cattle and a pronounced lack of ability to process cattle in a timely fashion.

It appears that after about seven weeks, the majority of outward market reactions to the fire have passed.  Certainly there are impacts and additional costs still being incurred by buyers and sellers to deal with the impacts of the closed packing plant. Though some in the industry were surprised and frustrated with market reactions after the fire, the type and duration of price behavior are exactly what is predicted by market economics.  Freely operating markets provide extreme price signals to provoke dramatic reactions to this type of shock resulting in rather quick adjustments to adverse market conditions and recovery from market disruptions.

Source: Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist