One recent fire lit up the cattle markets, proving just one event can have a big-time impact. The Aug. 9 fire at Tyson’s Finney County, Kan., harvest facility shuttered the plant and sent the industry in a tailspin.
The fire took 6% of the industry’s slaughter capacity offline at a time when beef packers were already running at 91% of capacity.
Immediately following the fire, Tyson Foods executives sought to reassure both the beef industry and its employees. Steve Stouffer, group president of Tyson Fresh Meats, said plant repairs would begin immediately and the 3,800 employees affected by the plant’s closure would be paid until it reopens.
Fallout From The Fire
Two months after the fire subsided, those in the cattle industry are still trying to understand how one fire, at one beef packing plant in Kansas, could shake up the market the way it did.
“The boxed beef market shot up, and then has quickly retreated back to previous levels, at least to where we would be this time of the year,” adds Derrel Peel, livestock specialist at Kansas State University. “Effects from the fire are pretty much out of that market.”
Feedlot Versus Packer
The market was flooded with emotion, adds Glynn Tonsor, agricultural economist at Kansas State University.
“In the short-term, this fire was adverse for the margins at the feedlot level,” Tonsor says. “And likewise, in the short-term, it was good for margins at the package level, certainly gross margins improvement and most likely net margins with that. However, we don’t have cost data analysis to get real precise on the margins, but that’s a pretty obvious impact from this.”
The initial market reaction was knee-jerk, says Jayson Lusk, agricultural economist at Purdue University. Then basic market fundamentals took over.
“When you reduce processing capacity that reduces demand for cattle, which drove down cattle prices,” Lusk explains. “Then we had extra costs in the system because we had to bring in extra workers on Saturdays and conversions of plants that pushed up wholesale prices. While margins increased, it was a response to the underlying market conditions.”
The fire, and market reaction since, sparked major controversy. Colin Woodall, CEO of the National Cattlemen’s Beef Association (NCBA), started hearing cattle producers’ frustrations post-fire. He says NCBA took those concerns to the White House and USDA.
“Secretary [Sonny] Perdue launched an investigation and the whole goal of it is to understand what transpired and actually give us some facts and analysis,” he says.
The investigation, Woodall says, will hopefully reveal some answers, including if there was collusion among meat packers, or if there were other factors driving prices in the marketplace.