Any time cattle prices go limit down, producers have an immediate and rational cause for concern. During the 2019 Beef Stocker Field Day in Manhattan, Kansas, economist Glynn Tonsor spoke about the Aug. 9 fire at a Tyson processing plant near Holcomb and its impact on cattle and beef markets.
“That specific plant represents 5 to 6 percent of the operating capacity from a fed steer and heifer perspective in the U.S. but that understates its importance to the state,” Tonsor said. “That plant represents roughly a fourth of the normal processing capacity for the state of Kansas.”
On a global scale, just 5 percent of the United States’ beef processing capacity seems like a small blip in total production, but the fire itself quickly altered the way surrounding plants process beef.
“When you lose a facility’s ability to process cattle, collectively our industry’s ability to process cattle changed,” Tonsor said. “Even if we find a way to keep up the total processing volume, we’re only going to do that if we change operations.”
The solution to lost capacity was to immediately ask other processing plants to “do more and different,” Tonsor said.
“We have some cull cow plants that now are doing steers and heifers — that’s a version of doing different,” Tonsor said. “There are a lot of animals being shipped farther and to different locations than they were before.”
However, as many ingrained farmers and ranchers can attest, no one does something different for free. Paying extra shipping costs to facilities or asking workers to take more shifts all caused the relative value of live cattle to drop.
“If you have this shock that collectively makes it more difficult to process cattle, that’s going to decrease the derived demand for fed cattle,” Tonsor said. “If I’m a client, my interest in fed cattle is a little bit lower the day after this fire than it was before.”
For Tonsor, lower live cattle prices immediately following the fire were to be expected and showed a natural reaction in the market. A similarly expected response appeared soon after in boxed beef markets.
“We would expect that wholesale beef prices would go up and fed cattle prices would go down after an event like this and that is exactly what occurred,” Tonsor said. “Specifically, we have the two largest daily changes in the price the week following the event, which is a strong reaction to what we’re talking about.”
Beef buyers, facing lower numbers of processed beef and concerned for when more might be available, started bidding up the price of boxed beef soon after the scenario.
“What’s most important here is that the month before this fire, we had pretty low cold storage stocks,” Tonsor said. “That’s actually a good thing in many ways for the industry because that’s another sign that we were current and didn’t have beef stacking up in the system.”
In all, Tonsor said the markets’ responses to the event were not uncharacteristic and should right themselves in time. The impacts may be magnified in the state due to proximity and limited in-state capacity, but with plans to quickly re-open the plant those effects should be short lived.