May 23, 2020

 

US cattle slaughter continuously worsens

 

 

On-year declines in cattle slaughter increasingly worsened through April, with weekly cattle slaughter dropping by 17% to 35% for the week ending April 11 to the week ending May 2, respectively, Beef Magazine reported.

 

Temporary closures and slowdowns of packing plants due to the COVID-19 crisis have created unprecedented product flow disruptions and price fluctuations in the meat protein supply chain.

 

Week-over-week slaughter increases in early May fuelled guarded optimism that the worst of packing plant disruptions are over. Still, more than a month and counting with severely reduced slaughter means a backlog of slaughter cattle is growing rapidly.

 

Packers place utmost concern on worker health, safety and availability. They have engineered controls such as workstation alignments and modifications, plus worker physical distancing measures where possible. How much these adjustments will reduce packing plant capacity is a huge unknown. Arbitrary 10% to 15% figures have been suggested, but they're just speculation. Only time will tell. Ingenuity will be a huge factor.

 

Peak fed cattle slaughter typically occurs in summer. Slaughter rates will need to rise dramatically to work through the large supplies of cattle coming, including both on-time marketings and the backlog of overmarket-ready cattle that has developed.

 

Consumers need to know that no shortage of cattle available to produce beef exists. Rather COVID-19 presented a monumental challenge in converting cattle into beef. Temporary closures and slowdowns of meat packing plants, at a time when plants were running near capacity, caused a bottleneck in the cattle-beef supply chain and impacted beef packing plants' ability to receive cattle and transform them into a wide array of beef and beef products.

 

Less beef temporarily being available means less meat available for retailers to buy, mostly grocery stores at this point. Limited restaurant traffic means meat consumption in the food-away-from-home sector remains sluggish. As a result, grocery stores and consumers are bidding up the price of available beef. Wholesale beef prices have surged, reaching a level never seen before, at least in nominal terms.

 

The wholesale-to-retail market is reacting rationally to market economy forces. A market economy is one in which buyers and sellers freely make decisions in response to supply and demand. Those decisions drive prices and production. In a market economy, prices measure availability or scarcity. Prices are reacting to a temporary tight meat supply from packers.

 

Retail grocers plan sales many weeks in advance—to schedule advertising and ensure logistics of product supply. Beef takes many weeks to get from live animal to grocery store. Wholesale prices lead retail prices by many weeks. Different cuts can have different lag lengths. Some evidence suggests retailers react more quickly to rising wholesale prices than to falling wholesale prices.

 

Several factors contribute to the lag in retail price response. The time required to process, package, transport and shelve is one. Differences that exist in the assimilation of market information among both consumers and retail managers may also influence price response. The mix of procurement pricing strategies, i.e., negotiated versus formula versus forward contracted, may affect the price response between wholesale and retail.

 

Retailers' reluctance to change prices significantly in the short run is also a factor. Some retailers are not as compelled to match the prices of competing stores on beef as they are on other items. Weekly features of high-penetration, high-frequency staples such as meat and produce increases customer traffic and can give retailers an edge. Changing retail prices is costly in terms of time and materials, as well as customer goodwill. Altogether this suggests retail prices can be somewhat rigid relative to changes in wholesale prices.

 

While some major retail supermarket outlets have suspended or reduced retail ads because of temporarily lower beef supplies, sales are still finding their way to retail circulars. According to USDA's National Retail Report, beef cuts from the chuck and round saw the most ad space May 15-21, while cuts from the loin, rib, brisket and ground beef saw less, although the flip was the case the previous week.

 

The collective feature rate of major retail supermarkets—the amount of sampled stores advertising any reported beef item during the current week expressed as a percentage of the total sample—was 65.8%, a 14.6 percentage point decline compared to the previous week. It was down about the same from a year ago. The special rate—the percentage of sampled stores with a no-price promotion, e.g., buy one, get one free, etc.—was 14.3%, and was about the same as the previous week but 24.9 percentage points lower than last year.