Although some in the cattle industry were surprised and frustrated with market reactions to Tyson’s fire at its Finney County, KS, beef plant, the type and duration of price behavior were exactly what is predicted by market economics, said Oklahoma State University agricultural economist Derrell Peel in a newsletter to Extension agents called Cow/Calf Corner.
Markets typically react strongly to a disruption like the Tyson fire, Peel said. In the eyes of economists this is done to provide a market shock that will initiate actions that repair the market disruption.
BEEF’S REACTION
The Aug. 8 fire caused an immediate loss of wholesale fresh beef, leaving buyers scrambling to find product and for Tyson to meet contractual obligations. Prices jumped sharply as cattle prices dropped.
Choice beef cutout values increased from a weekly average of $216.04 per cwt the week before the fire to a peak of $239.87 two weeks later, he said. By the last week of September, the price had dropped to $214.51 and has since moved seasonally lower.
Price increases for end cuts (chuck and round) were quicker and more sustained than for the middle meats (steaks), Peel said. Normal seasonalities have ribs and lions weakening from August into September while roast and crock pot season pushes end cuts higher.
A month after the fire, most noticeable effects were absent from boxed beef markets, he said.
FUTURES REACT MORE
Cattle futures markets reacted most dramatically to the fire, which is exactly their role, Peel said. Live and feeder futures gapped limit down for two days and continued lower until after the Labor Day holiday before beginning a sharp recovery that filled the down gaps by the end of September.
Cash feeder cattle markets also dropped after the fire on the uncertainty about long term effects on cattle markets, he said. Lightweight feeder cattle prices showed variable recovery through September ending below pre-fire levels on normal seasonal pressure.
Stocker cattle prices were steady to higher from September into early October with wheat pasture demand and other market fundamentals driving the market, Peel said.
Heavy feeder prices dropped sharply the week after the fire with recovery beginning by the second week, he said. By late September, prices had recovered to exceed pre-fire levels.
Fed cattle prices took the biggest hit, Peel said. Fed prices dropped from $112.37 per cwt the week before the fire to $106.68 the week after.
Feedlots and packing plants initiated significant logistical contortions to reroute cattle to other facilities, a process that continues, he said.
Cash fed cattle prices ultimately bottomed five weeks after the fire at $100.07 per cwt, Peel said. By the first week of October, fed cattle prices were $107.12 per cwt.
Limited packing capacity likely will continue to restrict fed cattle prices somewhat, but it appears the industry has avoided a serious backlog of fed cattle, Peel said.
CATTLE, BEEF RECAP
Cash cattle trade last week ranged from $106 per cwt on a live basis early up to $108 late in the week, up $1 to $3 from the previous week. Dressed-basis trade was at mostly $170, up $5.
The USDA choice cutout Wednesday was up $1.00 per cwt at $214.60, while select was off $0.94 at $186.12. The choice/select spread widened to $24.48 from $26.54 with 124 loads of fabricated product sold into the spot market.
No cattle were posted Wednesday for delivery against the Oct contract.
The CME Feeder Cattle index for the seven days ended Monday was $144.45 per cwt, up $0.04 from the previous day. This compares with Wednesday’s Oct contract settlement of $144.50, up $2.47.