Fed cattle prices likely will weaken in the wake of Saturday’s fire that closed Tyson’s Holcomb, KS, fed cattle slaughter and packing facility “indefinitely,” market analysts and a feedlot manager said.
Wholesale and retail beef prices also could rise until supply chains can be reshaped, the analysts said.
At the very least, cattle market volatility will almost certainly increase, they said. Markets hate uncertainty, so if this were the only thing to change, prices likely would decline.
But it’s not.
Slaughter and processing capacity has been removed from the US cattle markets, the analysts said. Worse, fed cattle slaughter capacity has been removed, since the Holcomb plant slaughtered fed cattle exclusively – no cows or bulls.
MEASURABLE PERCENTAGE LOSS
Tyson’s Holcomb plant is one of the behemoths of the industry. It’s not some small plant that would affect only local feeders and meat markets. It kills and processes 5,000 to 6,000 head a day and generally operates six days a week.
Last week’s total cattle slaughter was estimated by the USDA at about 645,000 head. However, this includes cows and bulls. USDA figures for fed cattle slaughter the last week of July, the last week available, come to a kill of 526,200 head.
That means the Holcomb plant by itself handles about 5.12% of total weekly US cattle slaughter and 6.27% of total weekly fed cattle slaughter.
Cattle feeders who had planned to sell their slaughter-ready cattle to Tyson for slaughter and processing at Holcomb will have to find another place to sell them. And if the cattle were ready to be slaughtered this week, the problem will be especially acute.
Drovers had a story Saturday quoting Sterling Marketing’s John Nalivka who said beef cattle slaughter capacity utilization was about 92% to 93%. If he’s accurate, it’ll be hard for all feedlots affected by the fire to find a new market.
WHERE CAN THEY GO?
A market analyst said other packing companies might be able to absorb the extra cattle slaughter and fill in the beef market share Tyson will lose to the fire. However, if slaughter capacity is close to 92% to 93% currently, many of the possible slaughter alternatives will have to pay overtime or put on an extra shift, perhaps an extra Saturday kill.
But they won’t put on an extra shift until they see that it’s economically feasible to do so, and they won’t know this until Tyson can figure out how long the Holcomb plant might be closed, an analyst said.
The Holcomb plant sits between Tyson’s Amarillo, Texas, plant and its Lexington, Neb., plant. Some cattle scheduled for Holcomb could be rerouted to these facilities, but they will lose weight traveling the extra miles.
There also were questions over the weekend whether Tyson could reopen its Emporia, KS, plant, but it’s not known if the equipment is still there or can be restarted economically.
CATTLE, BEEF RECAP
Cash cattle traded in Iowa last Monday at $114 per cwt on a live basis, steady to down $2 from the previous week. Late-week trade was at $110 to $113, down $1 to $3. Dressed-basis trade was at $181 to $183, down $2.
The USDA choice cutout Friday was down $0.51 per cwt at $216.37, while select was up $1.44 at $193.81. The choice/select spread narrowed to $22.56 from $24.51 with 71 loads of fabricated product sold into the spot market.
No cattle were tendered for delivery against the Aug contract Friday.
The CME Feeder Cattle index for the seven days ended Thursday was $141.66 per cwt, down $0.20 from the previous day. This compares with Friday’s Aug contract settlement of $138.90, down $0.95.