Labor issues at packing plants will have impact into 2021 as industry works through feeder cattle.

Krissa Welshans, Livestock Editor

May 22, 2020

5 Min Read
Cattle in feedlot

Beef production reached record levels during the first quarter of 2020 due to the largest number of cattle slaughtered for the quarter since 2002 and the heaviest dressed weights since 2016, according to the U.S. Department of Agriculture's latest “Livestock, Dairy & Poultry Outlook.” Further, U.S. beef imports in the first quarter reached levels not seen since 2016, when production was 17% less than the current quarter, but the impact of COVID-19 on beef production in April and early May was significant, stopping the beef industry -- like many animal protein commodities -- in its tracks.

USDA said beef production peaked during the week ending March 28, after which it began declining at a rapid pace.

“As the spread of COVID-19 hit many meat packing facilities, they had to temporarily close operations or reduce shifts to adjust to labor force absences,” USDA economists Russell Knight and Christopher Davis noted. “Facility-specific health protocols and social distancing may inhibit plants’ processing ability to return to normal kill levels as employees try to return to work. To an extent, kill schedules will depend on each facility’s ability to manage the situation at their plants.”

The capacity to produce beef at pre-COVID-19 levels may remain an issue into 2021, they added.

In late March, as consumers prepared to shelter in place, retail demand for beef increased. However, despite strong demand, boxed beef sales diminished quickly as production deteriorated in the following weeks. The limited production had a large impact on beef prices. Wholesale beef prices skyrocketed to new heights well beyond recent records set in 2014 and 2015.

However, Knight and Davis suggested that beef production may have reached its low in early May.

Reduced capacity backs up fed cattle

According to USDA, fed cattle had a more dramatic reduction in slaughter than non-fed cattle. In the weeks following peak fed cattle slaughter (steers and heifers), which occurred the week ending March 28, the beef industry lost 40% of slaughter capacity. Further, the weekly slaughter volume of cows and bulls declined about 12-14% over the same period.

Knight and Davis mentioned the industry’s recovery efforts following the Tyson beef plant fire in Kansas last August. After a period of adjustment to redirect those cattle to alternative slaughter locations, they said packers were able to increase capacity with increased slaughter on Saturdays to make up for the loss. The current situation, however, does not allow plants to easily make up for lost slaughter capacity, given the labor challenges, they said.

“Based on recent maximum slaughter levels for the second quarter, there is likely a significant shortfall in slaughter since it peaked the last week of March. As a result, feedlots are having to continue to feed their cattle longer, and this is likely to be an issue into 2021 as the industry works through the feeder cattle that are awaiting placement in feedlots,” Knight and Davis reported.

Further, they said this will likely add to the number of cattle outside feedlots, which was estimated to be over 3% more on April 1.

Production expected to set record in 2021

USDA lowered its beef production forecast for the second quarter of 2020 by 1.3 billion lb. to 5.6 billion lb., 17% below last year and the lowest for the quarter since 1990.

Production in the second half of 2020 was lower versus last month based on the expectation that beef packing facilities that principally slaughter fed cattle will continue to adjust their slaughter capacity as facilities implement social distancing and other health protocols that will slow the daily pace of slaughter.

“This more than offsets heavier expected average dressed weights and higher expected non-fed cattle slaughter as producers cull cows in response to low returns,” Knight and Davis said. “As a result, the annual beef production forecast for 2020 was reduced by 1.7 billion lb. from last month to 25.8 billion lb., about 5% below 2019 levels."

USDA’s initial forecast for 2021 commercial beef production is expected to set a record for production at 27.5 billion lb., as cattle placements in feedlots during the second half of 2020 are expected to be slaughtered in 2021. Additionally, Knight and Davis noted that higher expected dressed weights as the result of feeding cattle longer will support higher production.

Lower cattle prices expected

According to the outlook, the buildup in fed cattle supplies that are market ready is expected to have a substantial and lasting effect on fed cattle prices.

“Prices will remain low as the supply of market-ready cattle remains above the sector’s ability to process them, and the supply issue is expected to linger through 2021,” USDA reported.

As a result, the 2020 price forecast for fed steers was reduced to $104.10/cwt. as average prices are expected to dip below $100.00/cwt. in the second and third quarters and then rebound modestly in the fourth quarter. The first-quarter 2021 price is expected to remain relatively low, at $101.00/cwt.

However, demand is expected to recover in late 2021, which led USDA to forecast an annual price of $109.00/cwt., almost 5% higher than 2020.

Knight and Davis reported that the current fed cattle prices as well as the need to keep cattle on feed longer as packing facilities adjust slaughter schedules has resulted in feedlot margins being squeezed.

“Feedlots have substantially reduced placements in February and March and are likely less willing to bid aggressively for feeder cattle,” they noted.

Based on recent price data, USDA lowered the second-quarter 2020 feeder steer price to $121/cwt. The third-quarter 2020 price forecast was lowered $5.00 to $123.00/cwt., and the fourth-quarter 2020 price was lowered $17.00 to $118.00/cwt. As a result, USDA’s annual price forecast for 2020 is $124.50/cwt., close to last month’s forecast.

USDA said its price forecast for the 2021 first quarter remains relatively low, at $125.00/cwt., although feeder steer prices are expected to improve in the second half of 2021 on increased demand. The 2021 annual feeder steer price is projected at $131.50/cwt., more than 5% higher than 2020.

About the Author(s)

Krissa Welshans

Livestock Editor

Krissa Welshans grew up on a crop farm and cow-calf operation in Marlette, Michigan. Welshans earned a bachelor’s degree in animal science from Michigan State University and master’s degree in public policy from New England College. She and her husband Brock run a show cattle operation in Henrietta, Texas, where they reside with their son, Wynn.

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