Cattle grazing on rangeland.
As the COVID-19 pandemic reached its fifth full month of activity in the U.S. over the summer, several agricultural economists have gathered enough data to look at full trends of the globe’s largest global pandemic since 1918.
Jayson Lusk, the head of the Department of Agricultural Economics at Purdue University, was the first speaker part of the Pasture to Plate webinar series put on by the South Dakota Farm Bureau. Speaking on June 23, Lusk covered the cattle and beef supply chain over the three-month period of rapid growth and decline.
“There has been a lot of confusion on the causes and drivers of the disruptors we’ve seen,” he said.
The cattle market demand and supply shocks could be outlined by several major events, starting with the closure of the country. As restaurants closed, demand for beef plummeted. At the same time, demand for grocery store meat skyrocketed. Following both of these demand shocks, there was a substantial supply shock when many packers shut down due to COVID outbreaks.
Because of this rapid shift in the market, Lusk said cattle markets began getting national attention on a scale that he’d never seen. After a bit of recovery when several states began reopening in late May, cattle markets took another lick when those states shut down again after a spike in cases.
All of these back and forth shocks have been propped up by the at-home food prices. Consumers are buying and storing meat products like never before. However, due to consumer comfort levels, Lusk said meat prices for certain products didn’t recover through summer.
“You see it even more dramatically in pork, based on what people are comfortable with eating at home,” he said.
As the pandemic progressed, national attention began focusing on ways to sure up the vulnerabilities COVID-19 outlined in the nation’s meat processing and packing industries. While his team at Purdue fielded calls from many consumers, reporters and farmers about why the industry is setup the way it is, Lusk said understanding that farmers cannot simply provide food to consumers is the first step to understanding the markets.
“Even though there are a couple million farmers, all of that product doesn’t go to consumers,” he said.
Trying to make the industry more resilient, some looked to small processors to ramp up production. Lusk said that idea relies heavily on more small processors coming online. Roughly 100 new small-scale processors would be needed to make up for just one of the large plants, he estimated.
The bigger concern for the cattle market over the last several months has been whether or not the fairly concentrated packing plants have been playing fair with the cattle markets. The USDA report on cattle markets since the plant fire in Kansas found no wrongdoing overall by the packers, but Lusk said all of it is conjecture as there is no clear data on packer profits.
However, Lusk said he doesn’t necessarily believe there was wrongdoing either.
“I can’t rule out price manipulation, but you don’t need anti-competitive behavior to see these price spreads widen like this,” he said. “Basic economic forces would force this to happen if there was a disruption like we had in the processing sector.”
In the simplest terms, as packers’ processing capacity fell, demand for cattle fell with it. That caused a decrease in cattle prices for producers. But, as that processing fell, the cost for wholesale prices skyrocketed due to the decreased supply.
“You get these two things at the same time, which really caused this widening price spread,” Lusk said.
He doesn’t believe many packers were intentionally stalling production to keep prices high, he said, because those packers would be fighting tooth and nail to get more cattle into the market at the highest prices, to begin with. Based on his interpretation of the data, and the fact that many of the packers’ stock prices actually declined during the pandemic, Lusk said that all blame should be put on COVID-19, not each sector of the industry.
“We know cattle producers were hurt,” he said. “It’s also clear that consumers were harmed, as their prices increased significantly. What about the packers? It’s unclear. My belief is that they weren’t necessarily as well off. They may not have been harmed as much as cattle producers.”
Throughout all the disruption in the traditional beef market, data showed that the plant-based protein market remained fairly steady. The industry met growth projections, and there was no overall disruption to the supply of plant-based ingredients other than when lockdowns occurred. However, Lusk said the sustainability of plant-based meat substitute market most likely came from the still relatively low volume of product moved compared to traditional beef.
To close the webinar, Lusk highlighted some of the changes he expects to come to the cattle market. While he imagines the economic recession will affect beef prices negatively, some long term effects may bring positive news. Those include the greater focus on equality in the cattle markets and the consumer’s newfound appreciation for the food supply chain.
There may be a greater focus on automation in the meatpacking industry, given a lot of the issues packers face each year, and especially during the pandemic, has come from labor.
“Automation is just a hard problem in meatpacking,” Lusk said. “Animals are different shapes and sizes. It’s not like cars.”
Leaving on a silver lining, Lusk said that he expects many barriers to entry for the packing industry may be eliminated in the coming years to allow more small processors to take hold in their markets.
The Pasture to Plate program was a series of 8 webinars focusing on all aspects of the agricultural industry. To watch past webinars or register for coming events, visit www.sdfbf.org/Policy-Advocacy/Pasture-to-Plate-Program. Here’s what’s on the schedule:
Sept. 24 at 7:30 p.m. - Beef Labeling with Dr. Glynn Tonsor, Kansas State University
Oct. 8 at 7:30 p.m. - Cattle and Beef Markets with Mike Pearson, Zaner Group
Oct. 22 at 7:30 p.m. - International Trade of Cattle and Beef, Dr. Derrell Peel, Oklahoma State University
Nov. 5 at 7:30 p.m. - Local Meat Processing, Panel Dr. Dustin Oedekoven, State Veterinarian
Reach Reporter Jager Robinson at 605-335-7300, email jager.robinson@lee.net or follow on Twitter @Jager_Robinson.
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September 16, 2020 at 06:30PM
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COVID-19 comes with silver linings for the beef industry - Lincoln Journal Star
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