Impact of the coronavirus pandemic on livestock markets
By KRISS NELSON
Lee Schulz, department of economics at Iowa State University said when he compares the current situation of what is happening within the livestock industry due to COVID-19 with other issues he has dealt with since starting at ISU in 2012, he said “there has been nothing compared to this.”
“This has shaken the livestock markets tremendously,” he said. “When we look, really who is suffering right now, it is the producers. “
The volatile markets have been impacted by both the meat supply situation as well as the uncertainty of demand going forward.
“We know COVID-19 has impacted folk’s income and their ability to spend dollars on protein, not just here in the United States, but globally,” said Schulz.
The meat supply
Currently restaurants are pulling some of their meat offerings off of their menus, while grocery stores are limiting meat purchases.
Does this mean there is a shortage?
“We do not have a shortage in the sense that we have sufficient livestock,” said Schulz. “When you look at USDA’s projections for pork production in 2020, it was up 5%. The first quarter, which is already behind us, and there wasn’t really any challenges there, was up 8%. Look at total meat they were projecting up 3% for 2020 with the first quarter up 7%. Because of the decisions producers made, for example in the pork industry 10 months ago, the cattle industry even longer, that is dictating the production we are seeing today.”
The animals are here. Those numbers are assured. So what is the issue?
“The challenge is converting that livestock into consumable products both here domestically and on the export market,” he said.
And that challenge is due to slaughter capacity reduction which in turn is due to closure of several packing plants.
“It is not typical in the sense of a typical capacity issue. Historically we have seen issues with packing plants going off line or seeing reduced operation. Sometimes that is because of maintenance, sometimes it’s because an event like a fire in a packing plant, but with that situation, it is usually relatively isolated. We know the path to recovery to get that packing plant back online. The situation here is much different in that it’s really focused on our labor force,” he said.
To put insult to injury, pre COVID-19 we were at a historically low employment rates.
“There is a shortage in labor,” Schulz said. “When the labor is impacted, that will have detrimental effects on the ability to operate these packing plants. As we have seen with COVID-19 and we reaching our peak in the Midwest and more workers are being affected by it both directly and indirectly, that is having a detrimental effect on our ability to operate these packing plants.”
Schulz said the normal, national processing capacity is about 500,000 head per day, so when there is any disruption there is no simple solution to work through a large back log of hogs especially day after day.
“Say we have a slowdown of about 40% of that 500,000 head we can slaughter and we have seen that here. Early on we were 25% to 30%, as of late we have gotten to 40%. That’s 200,000 market ready hogs that are backed up on the farm each and every single day,” he said. “Do that for five days, you get a million hogs that are backed up in a week.”
What is the solution?
Schulz said in the short term, there are things that can be done. The growth of the animal can be slowed down, rations can be changed.
“It’s not an easy task by any means, we can crowd those buildings a little bit while maintaining the animal welfare that is needed, but those are very short term things that can be done to mitigate some of this impact and producers have done that at a time in the past when we have seen supplies larger than capacity, but usually it’s a couple of weeks to work though that situation,” he said. “That is a tremendous challenge that we are faced with right now. We have the fixed infrastructure both on the farm and at the packing plant level and now working through this back log of hogs is a tremendous challenge.”
We have sufficient livestock supply, just issues getting them to slaughter. So where do we stand in terms of a meat product shortage?
“The meat availability issue I know that has taken a lot of attention in the media. Is this a shortage? Or is it availability? I think it’s much more of an availability issue in the sense we are finding product at the grocery store. It’s just probably not in the form or the product that we necessarily are used to buying. “
Schulz said we are also seeing higher prices, especially a strong increase for prices in pork cuts such as the loin.
“They have increased significantly up 15% and range from about the same as a year ago to up 55%,” he said.
As far as demand, Schulz said there has been a big run on deli ham both packaged and sliced fresh.
“There’s a strong increase there as I think consumers are now purchasing much more of that product in the retail sector and we are seeing attention to those products,” he said.
No products are really below, as far as in demand to year ago levels, with the possibly the exception of the butt picnic products, as Schulz believes we just haven’t seen the quantity movement at the grocery store level.
Pork cold storage
Schulz said the cold storage of pork has provided a bit of a cushion for us since production has slowed at the processing level.
“It is important to understand what is the mix in cold storage. Cold storage is a variety of products,” he said. “The big bulk of that is bellies which contribute to 13% of what is in cold storage and that is up 34% from a year ago.”
This over abundance of pork belly is due to the reduction in bacon consumption.
“A lot of bacon is served in food service and the hospitality sector,” he said. “But, there has been a lot more stocks of belly pre-COVID-19 the reason why is we really developed a strong demand for that bacon and so, overtime, retailers have adjusted inventories to make sure they have some in cold storage they can pull out of in times of deep demand. “
Schulz said he has heard discussions from people suggesting we slow down exports in order to maintain a domestic meat supply.
“The important thing to understand here is exports flow to the highest value market and a lot of time that value in the United States can be zero or pretty close to zero, or much lower than the value that can be attracted on the world market,” he said. “Variety meats, for example China’s a big market for those products that are very little value in the U.S. They have much more value in China.”
The United States Meat Export Federation calculated in February, the export value for every hog. Schulz said the prices of hogs were $132 with an export value at almost $67.
“About 50% was due to the export market,” he said. “A big thing is, we are relied upon in the United States here has a reliable, consistent, quality supplier and I think we want to make sure we maintain that and that goes beyond just the value that we are attracting from each shipment of pork we send there. This goes across all proteins here, because that is why we have grown our pork industry because of the demand both here domestically and on the export market.”
Schulz said exports, for the first two months of the year, were up 41% by volume and 54% by value. Looking at weekly data through April 23, shows even more strength in accumulated exports with outstanding sales up about 60% for the year across all major markets.
Although there is a lot of unknown in the livestock markets, Schulz said there was a rally over the last couple of weeks in the hog market and some stability in the cattle markets, but there is some optimism in the sense of the October futures prices for hogs.
“There is certainly a lot of volatility, but we’ve hopefully put in that low and will continue to work and see some demand uphold those prices higher,” he said.
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