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Packer gross margins: Three months after the fire

It’s situation normal in the beef complex following the major market disruption in August.

Nevil Speer

December 19, 2019

1 Min Read
Three months after the fire
Nevil Speer

Three months ago, this column provided some coverage on packer gross  margins, otherwise known as the live-to-cutout spread. That discussion was spurred by the sharp spike in packer margins following the fire at Tyson’s Holcomb, Kan., beef plant. The purpose was to offer some longer-run context given the large amount of coverage (and rhetoric) that occurred.

As background, the live-to-cutout spread represents the difference between revenue derived from sales of hide and offal plus the wholesale value of beef cuts from a Choice carcass, less the cost of a fed steer. In other words, it represents gross profit: revenue less cost of goods sold.  

It does NOT account for operating costs (wages, salaries, administrative expenses, utilities, insurance, depreciation). That said, it is NOT a net profit number, despite often being portrayed that way.  

Three months after the fire

This week’s graph depicts weekly gross profit for a 1,350-pound steer. Just prior to the fire, that number was running right around $490 per head. It subsequently surged sharply higher.

However, in the months that have ensued, it’s since moderated and returned to more typical values the industry has established over the past several years. For the week ending Dec. 13, the spread for a 1,350-pound steer was below $400.  

Related:Markets become the target in a frustrating ranching climate

As noted earlier, there was lots of coverage on the heated rhetoric following the fire in August. However, based on these trends, it appears packer gross margins are back in line with the previous two years. And, barring a similar event, there’s no reason they should deviate too far from that trend like the industry witnessed in August.  

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY. Contact him at [email protected].

About the Author(s)

Nevil Speer

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY.

Nevil Speer has extensive experience and involvement with the livestock and food industry including various service and consultation projects spanning such issues as market competition, business and economic implications of agroterrorism, animal identification, assessment of price risk and market volatility on the producer segment, and usage of antibiotics in animal agriculture.
 
Dr. Speer writes about many aspects regarding agriculture and the food industry with regular contribution to BEEF and Feedstuffs.  He’s also written several influential industry white papers dealing with issues such as changing business dynamics in the beef complex, producer decision-making, and country-of-origin labeling.
 
He serves as a member of the Board of Directors for the National Institute for Animal Agriculture.
 
Dr. Speer holds both a PhD in Animal Science and a Master’s degree in Business Administration.

Contact him at [email protected].

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