By DOUG SCHMITZ
LINCOLN, Neb. – Farm analysts are keeping a close eye on the impact the recent JBS meat processing plant fire will have on the markets.
Elliott Dennis, University of Nebraska assistant professor of agricultural economics and extension livestock marketing specialist, in his column for the Livestock Marketing Information Center, said JBS’ Grand Island, Neb., beef plant fire has similarities to the Holcomb, Kan.-based Tyson Foods plant fire.
On Sept. 13, a fire broke out on the roof of the JBS meat processing plant in Grand Island, Neb. An investigation into the cause of the blaze is currently ongoing.
Dennis said both plants processed about 6,000 head per day, or approximately 6 percent of total daily beef slaughter.
“We learned several lessons from the Holcomb, Kan., fire that could apply to the Grand Island, Neb., fire,” he said. “First, live cattle prices are likely to fall, given the now oversupply of harvest-ready cattle, relative to processing capacity.
“Second, wholesale cutouts are likely to increase as retailers seek to make advance purchases on beef,” he added. “Combined, these will likely widen beef processing margins – something that has been curiously and intensely watched since 2019.”
He said the market will look for two signals to regulate this margin: 1) Will the damaged plant be rebuilt? And 2) How long will the plant be shut down before it will be fully operational?
“In the case of the Holcomb fire, it was about one month before plant damage was fully assessed and announced to be rebuilt, and four months (December 2019) before it became fully operational,” he said.
“Examining the fed cattle price differentials (a pricing strategy in which different prices are set for the same product on the basis of differing customer type, time of purchase, etc.) between the major cattle feeding areas, showed that all areas experienced decreased prices within the first month,” he added.
He said that’s about a 10 percent decline in price relative to prices the Friday before the Holcomb, Kan., plant fire, and were at prices equal to prices the Friday before the fire two months after the fire.
“A similar situation across the different cattle feeding regions could play out for the Grand Island plant fire as well,” he said. “The point of differentiation between the two fires likely lies in available processing capacity pre-fire, and the day on which the fire occurred.
“After the Holcomb fire, Tyson diverted committed cattle to other plants that had excess capacity,” he added. “This showed up in increased Saturday harvest levels as plants ran additional shifts. This was in a pre-COVID-19 era where absenteeism was lower, labor relations were better, and there were no increased OSHA (Occupational Safety and Health Administration) protocols in plants due to COVID-19, and its derivatives.”
He said JBS will most likely try to do the same as the Holcomb plant did in the short run.
“However, given that the processing industry was already running at strained levels of labor levels, how much they will be able to increase Saturday and Sunday kills without losing more labor is left to be seen,” he said. “One positive is that JBS recently reached a new labor contract at their Greeley, Colo., plant, which could help lessen concerns about potential labor shortages.
“Second, the fire also occurred after Labor Day where retailers had already started to back off beef purchases,” he added. “This should work to lessen the severity of any price jump in the wholesale cutout value as there are fewer concerns about wanting to capture consumers’ grilling preferences.”
He said the people who may lose out in the JBS fire aftermath could be feeder cattle producers.
“The fire occurring after Labor Day should lessen the upward price movement in the cutout, but it puts greater pressure on market-ready cattle to be moved out of pens to provide space for weaned feeder cattle to enter pens,” he said.
Although the JBS plant fire primarily affected fed cattle, he said it did influence feeder cattle prices.
“Feeder cattle have already started to enter feedlots earlier than in previous years as drought and reduced forage production has forced some feeder cattle producers to market feeder cattle earlier,” he said.
“If pens continue to stay full, this could reduce the price feedlots would be willing to pay for feeder cattle,” he added. “This, combined with potentially higher feed grain prices, both have the potential for increased downside price movements.”