By Dale R. Woerner, associate professor in the College of Agricultural Sciences and Natural Resources at Texas Tech University.
The impact of COVID-19 on the livestock and meat industry is peaking, leaving livestock producers and processors on the edge of economic sustainability and the market in a complete imbalance.
Perhaps the greatest impact to this point has been on livestock producers, who have seen devastating drops in the value of their animals. The pork industry seems to have experienced the hardest hit, but if plant closures continue and become long-term, the impact on meat companies could be enormous.
Early in the COVID-19 pandemic, the demand for red meat was strong and supply was plentiful. Processors worked extended shifts to backfill retail shelves and continue supplying a food service industry that was still going strong in most parts of the country. The initial wave of meat shortages, or at least the perception of it at retail stores, was a result of reactionary bulk buying as consumers anticipated widespread stay-at-home orders and a mass shutdown of restaurants and, potentially, grocery stores.
The reality was the supply of meat products was very strong. The demand for meat and livestock had suddenly spiked, and meat companies were scrambling to increase production. That provided hope for price increases for livestock, as animals were being procured to maximize the capacities of commercial processing facilities. During this time, cattle and swine prices elevated slightly, but the uncertainty of continued operation on the processing side due to COVID-19 left producers selling and shipping inventories before increased demand caused the market to reach a parallel value.
Now, due to a drastic decrease in processing capacity as a result of plants closing for human health concerns, the shortage of meat products is real. In addition to full plant closures, it seems that for every closed plant, there are three more operating at significantly reduced capacity. Meat processors are struggling to meet minimum orders for the retail segment, leaving supermarket and wholesale club store meat cases partially empty. Most experts hope this will be a temporary shortage, maybe a couple of weeks, as some of the closed plants are already coming back online. However, the price return to the livestock market will likely be painfully slow.
In addition to meat shortages, large inventories of cattle and swine have backed up, and even when processors are back to full production, the system will be oversupplied with over-sized livestock. The sudden decline in the food service industry has plummeted the value of pork, which gets a large portion of its price boost from restaurants. Bacon, bellies and other premium pork products have plummeted in value, with bellies trading below $0.40 per pound and retail bacon reaching $2 per pound or less.
Current pork prices are low enough to leave processors wondering how long they should wait to reopen the facilities, even if worker health and safety could be guaranteed. Beef products also are selling far outside the norm, with the value of end meats (beef round and chuck) and beef trimmings almost doubling in value in response to increased demand for lean ground beef and other convenience items.
The loss of the food service demand has caused beef middle meats (rib and loin cuts) to drop to their lowest price in a decade. Conversely, the carcass cutout value has increased, driving a wider spread between live cattle and carcass values. With plant closures and reduced production, cattle supply is very long and live cattle prices continue to stay at a devastatingly low point for producers.
Ultimately, COVID-19 has the livestock and meat industry way out of balance, and despite large livestock inventories, meat is in temporary short supply. Like we have heard all along, and the livestock and meat industry are no exception – unprecedented times!
Texas Tech University