By Ching Lee
Forage availability remains fundamental to California ranchers’ profitability, according to a UC Cooperative Extension specialist, and this year’s drought made it more difficult for ranchers to hold their cattle longer when the COVID-19 pandemic led to sharp reductions in feeder-cattle prices.
Photo/Ching Lee
Dried-out range grasses complicate management for California cattle ranchers, who have seen unsettled markets during the pandemic.
Photo/Richard Green
Outbreaks of COVID-19 in U.S. meatpacking plants reduced beef-processing capacity and created significant bottlenecks in beef production that not only affected ranchers but resulted in tighter supplies of beef and higher prices at the meat counter.
In a webinar last week, Tina Saitone, a University of California, Davis, Cooperative Extension specialist in livestock and rangeland economics, delved into how the current setup of the supply chain has been particularly problematic for California ranchers and caused disruptions up and down the system during the pandemic.
U.S. meatpacking plants—including for beef, pork and broilers—are generally large operations, producing more than 10 million pounds of meat per month, she said. American packers employ some 525,000 people who account for about 30% of all food and beverage manufacturing employees in the nation.
Most of the nation’s meat-packing facilities belong to four firms—JBS, Cargill, Tyson and Smithfield—that process about 85% of the country’s steers and heifers each year. The plants are generally located in the Midwest and near feedlots. Five states—Nebraska, Texas, Kansas, Iowa and Colorado—take about 70% of U.S. cattle on feed.
“This makes the costs associated with feeding cattle—and the costs associated with transporting those large fed cattle to processing—lower than if they were more geographically dispersed,” Saitone said.
Because of the large volume of meat they handle, plants that process beef in particular are “highly dependent” on humans making the cuts, she said, as robotics are currently not widely used by beef processors due to the nature of the carcass and the animal’s frame, muscling and genetics.
Meatpacking crews have typically worked shoulder to shoulder on disassembly lines, she said. As of May 31, the U.S. Centers for Disease Control and Prevention confirmed 15,200 COVID-19 cases in meatpacking plants. Outbreaks or concerns about disease transmission caused plants to shut down or reduce operations, resulting in a “precipitous decline in production” from early April to the beginning of May, she noted.
Ranchers face increased costs when timing of moving cattle through the system is thrown off by disruptions in the supply chain, particularly in processing, Saitone said. Prices for fed cattle declined roughly 22% in late April compared to January prices. The price of feeder cattle also slid about 24% in April compared to prices in mid-February.
California ranchers, who primarily run cow-calf and stocker operations, rely heavily on rangeland and pastures to feed their cattle, she said, and forage availability remains “fundamental to their ability to be profitable.”
With one-third of the state currently facing drought conditions, Saitone said, lack of feed has hurt ranchers’ ability to hold cattle longer, particularly when feeder prices collapsed due to COVID-19-related impacts. Unusually dry conditions in the North State, where many California cattle spend their summer and where there’s usually plentiful forage at higher elevations, “make it even harder” for ranchers already dealing with low cattle prices, she added.
That California ranchers are not geographically close to most of the nation’s feeding and processing operations adds another challenge, she said, noting there are “spatial discounts that roughly run about 80 cents per hundredweight for every mile that cattle are away from the feeding and processing capacity in the Midwest.” Depending on the weight of the cattle, this translates to potentially $13 to $15 per cwt. discounts.
As COVID-19 forced restaurants to close, processors struggled to produce more retail-ready cuts of meat from the generally larger and higher-end cuts they usually supply to food service, primarily because of the additional labor involved, she said.
“If they were short of one thing during the pandemic, it was certainly labor,” Saitone said, though adding, “luckily, we never really got to that point” of having widespread meat shortages.
Comparing retail prices of beef and veal from June 2019 to June 2020, she noted shoppers paid nearly 25% more year over year. As plants came back online and production increased, July 2020 prices were about 14% higher than the same time last year.
Widespread plant shutdowns in early May led to about a 40% reduction in processing capacity, sending wholesale beef prices surging. Though “beef was scarce” at grocery stores, Saitone said, there remained an oversupply of cattle on the market that couldn’t be processed because of plant closures, so there was “no incentive for processors to increase the price” they were paying for cattle.
The increase in wholesale beef prices—”substantially more” than the price processors were paying for cattle at the time, Saitone said—prompted an investigation by the U.S. Department of Agriculture and calls for processors to change the way they procure cattle.
Though widening of the price spread fueled controversy, she said processors had incurred costs to protect employees from COVID-19 and to keep plants running. She noted prevention strategies such as screening employees for fevers, requiring face coverings and adding hygiene stations have now been “commonly implemented” across all meat and poultry processing facilities. Certain plants have also reduced the volume of animals they process, so workers are not as close on disassembly lines.
“These things do not come without a cost to processors,” she said, noting that Tyson reported having spent $340 million during the third quarter of this year on safety equipment, safety measures and employee bonuses related to COVID-19.
“Yes, the price spread has increased,” Saitone added, “but there needs to be consideration, investigation into how much the processors are spending on these COVID-related impacts to ascertain whether or not they have actually enhanced their profitability at the expense of livestock producers.”
If the pandemic throws the country into widespread recession, she warned, a concern for producers is how lower household income levels have historically reduced demand for beef, leading to longer-term impacts for the beef sector.
(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)
Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.