Originally published April 26, 2020 on The Western Producer
By Barb Glen
Concerns about beef availability in the marketplace continue to sizzle like steak on a barbecue.
As slaughter plants in Canada and the United States reduce line speeds, shifts or effect temporary closures to deal with COVID-19 concerns, analysts say supplies are likely to be affected.
Market analyst Kevin Grier said Canadian slaughter is likely to be down by at least five percent in the second quarter of the year “if we’re lucky,” he told those on a webinar organized by marketing intelligence firm J.S. Ferraro. “Production is much, much slower than normal.”
That creates a major problem for cattle feeders. The Cargill plant at High River, Alta., one of two major packers on the Prairies, has temporarily closed due to an outbreak of COVID-19 among its workers.
Numerous workers at the other major plant, JBS in Brooks, Alta., have also tested positive and the plant is struggling to staff its operations. As of last week it was running only one shift, drastically reducing daily slaughter.
Several American packing plants that also accept Canadian animals have announced slaughter reductions or temporary closures because of workers ill with COVID-19. The Tyson plant in Pasco, Wash., is closed but the JBS plant in Greeley, Colo., was slated to open last week after temporarily closing earlier this month.
Grier spoke mainly about beef’s current place in food service and at retail, noting beef has held its value in stores relative to pork and chicken, making it much more expensive at the meat counter.
“Beef costing has become uncompetitive relative to the other two main meats,” Grier said.
The forced closure of full service restaurants as a virus control measure has gutted beef sales to those venues. That will be felt more severely in the third quarter, when Statistics Canada data indicates Canadians typically eat out more often.
The first quarter of the year typically has the lowest food service sales as people concentrate on paying Christmas bills and winter keeps them closer to home.
Grier predicted quick-serve restaurants like McDonalds could potentially keep 40 percent of their sales.
“I’m figuring in this quarter, second quarter and the third quarter, probably food service sales will be only about 25 percent to a third of what they normally are,” he said.
Though Canadians are now preparing and eating more food at home because of health department restrictions, a dollar spent at a restaurant doesn’t equate with that same dollar spent on retail for food at home. He quoted Rabobank figures indicating that for every 10 percent decline in spending at restaurants, only three percent is spent on retail food purchases.
“Retail sales probably are going to be up 20, 25 percent this quarter, 20, 25 percent in the next quarter and up about 10 or 15 in the fourth quarter, again because of the loss in food service,” predicted Grier.
American agriculture economist Rob Murphy, participating in the same market information webinar, said restricted packing capacity has caused a disconnect between meat prices and live animal prices.
Though retail meat cases were picked clean in the early days of the pandemic, the resulting drastic increase in Choice cutout prices stabilized but is likely to remain lower than the usual level typical of barbecue season.
Murphy said consumer stockpiling contributed to strong packer margins, which he predicted would remain so well into summer and possibly beyond.
However, May slaughter in the U.S. could be down by as much as nine percent due to slower processing speeds and temporary packing plant closures due to COVID-19.
“We think that’s going to persist, that you’re going to continue to see those types of problems that will lead to year over year declines in steer and heifer slaughter, at least for the next couple of months and maybe beyond.”
Murphy said blended steer and heifer weights are 23 pounds more than at this time last year and feedyards are not current.
“Price levels for cash cattle will probably continue to decline just simply because the cattle feeder needs to move the cattle and he doesn’t have much leverage with the packer. He’s happy to find hooks to put those cattle on at this stage of the game,” Murphy said.
Feedyard placements are likely to drop in coming months, lowering inventory. That has implications for beef supply this fall.
“Into fall we’re going to find that we don’t have a lot of market ready cattle as we get into September, October. Hopefully demand will be there to help support prices when we get there.”