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Expanded packing capacity required for US beef sector

Processing

Adding packing capacity would result in both a larger US beef industry over the long run and more balanced profitability throughout the supply chain, says Rabobank analyst.

Posted on Oct 13 ,10:52

Expanded packing capacity required for US beef sector

This year's disruptions in the US supply chain show an urgent need to expand packing capacity for US beef sector. According to the latest Rabobank analysis, Adding packing capacity would result in both a larger US beef industry over the long run and more balanced profitability throughout the supply chain. At the same time, this will make the US avoid major herd liquidation in the current cattle cycle, so the beef industry will be well-positioned to capitalize on growing global protein demand.
“If such expansion can be achieved through in-plant technology improvement and new, consumer demand-driven small and medium-sized plants, profitability will be more evenly distributed throughout the beef and cattle supply chain. More balanced profitability will prevent the US beef industry from shrinking and place it in a better position to capitalize on growing global protein demand,” according to Dustin Aherin, Analyst – Animal Protein, adding that improved profitability and industry stability allows for more outward, consumer-oriented focus and investment, which is critical for the US beef industry’s long-term success.
This year, economic uncertainty, as well as shifts in supply and demand, has caused great uncertainty in global protein markets. The situation has been further exacerbated by outbreaks of illness due to Covid-19 at the processing level that has created bottlenecks and backlogs. From March to May, weekly beef production has dropped by almost 40% but, despite the temptation of replacing beef with other alternatives, prices have responded immediately to increased demand."I think that was fantastic news for the beef industry. The hogs didn’t do this. Hogs didn’t get nearly that much pop in the cutout, especially after the U.S. government poured USD$2 trillion in stimulus out in the market. People will outbid each other far higher on price than we ever dreamed possible. So I think that’s indicative of a pretty solid underlying demand," commented Brian Stuart, President of Global Agri-Trends, invited as a headline speaker at the Canadian Beef Industry Conference. Looking to the future, Stuart believes meat processors will try to eliminate their dependence on human labour by investing in robotics.
So far, US beef industry hasn't recovered to 100% and reduced processing capacity due to plant shutdowns will likely continue. according to Stuart, the market leverage favours the packer when cattle supplies outnumber processing capability. "The leverage is heavily on the side of the packer and will be for months", he predicted.

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