Covid-19 is hitting the beef supply chain hard, as evidenced by the huge spikes in the USDA’s boxed beef cutout values this week.
Grocers are looking for supplies to fill their meat cases for upcoming features, driving prices higher. And while few expect such price spikes to continue, it’s easy to see the effect consumer hoarding can have on supply chains.
Derrell Peel, Oklahoma State University Extension agricultural economist wrote in a letter to Extension agents about this subject. This is an edited version of this newsletter.
UNCHARTED WATERS
The cattle and beef industry, along with the rest of the US and global economy is in uncharted waters with the Covid-19 pandemic. There are many unknowns about the timing, severity and aftermath of the disease, but for the beef industry, there are longer-term questions about the effect on domestic and international beef demand, with questions about a US and global recession looming.
The multitude of beef products are marketed through three broadly aggregated market channels: retail grocery, food service and exports. These channels involve different mixes of products, and each utilizes different supply chains.
Retail grocery and food service represent the bulk of domestic beef demand. USDA data shows that food at home (which roughly matches retail grocery) represents about 46% of total US food expenditures.
Food away from home represents about 54% of food expenditures.
LIMITED TRAVEL
The immediate response to Covid-19 is to limit travel, gatherings and public activities. Reduced travel, fewer restaurant visits and school closures all affect the away-from-home sector.
That implies a dramatic shift of food from food service into retail grocery sales. This represents huge demands on grocery store sales and the logistics of supplying retail stores.
For beef, there is immediate demand for more processing, packaging and shipping for retail sale and less processing and shipping of meat through food service distribution channels.
Grocers and restaurants typically sell somewhat different beef products in different proportions. Many retail grocery businesses do not have in-store butchers, which limits flexibility.
Grocery sales are planned weeks in advance for advertising schedules and to ensure logistics of product supply. There will be a variety of effects on markets for specific beef products.
For example, increased demand for ground beef has resulted in local shortages of product at grocery stores, while reduced restaurant demand may result in weaker middle meat sales.
Significant disruptions and stress on beef supply chains given the consumption changes associated with requirements to control COVID-19 can be expected.
A significant threat exists for bigger disruptions to beef supply chains if labor for beef packing, processing and shipping are directly affected by Covid-19. Last year’s packing plant closure provided an example of the vulnerability of the beef packing and processing sector and the potential market effects that would result if Covid-19 causes labor shortages.
It will take more time before the longer-term ramifications of Covid-19 on beef consumption are known.
CATTLE, BEEF RECAP
Cash cattle traded in the Plains this week at $105 to $113 per cwt on a live basis, down $3 to up $3 from last week. Dressed-basis trade has been at $170 to $175, steady to down $5.
The USDA choice cutout Thursday was up $2.63 per cwt at $249.87, while select was up $2.56 at $241.06. The choice/select spread widened to $8.81 from $8.74 with 176 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was not available. Thursday’s Mar contract settlement was $117.07, up $4.50, and the Apr settlement was $114.12, up $4.50.