Pig producers in the US to see losses reaching $700 million
The meat processing plants shutdown may be temporary but the impact on the US meat market is here to last, warns CoBank in its quarterly report. "Margins for cattle and hog farmers have fallen to multi-year lows. As meat plants have closed, farmers are left with few options for their livestock, requiring herds to be culled. Shrinkage in the U.S. livestock herd will likely make the food supply shortage more acute later in the year," said Will Sawyer, lead animal protein economist, CoBank.
Pork and beef production is down approximately 35% compared to this time last year, making retail shortages and price inflation nearly assured.
While pork processing is expected to pick up in the coming weeks, hog producers may still be forced to euthanize as many as 7 million pigs in the second quarter alone, worth nearly $700 million at historical average prices. This would further diminish meat supplies this fall and add to the billions of dollars of losses from lower livestock prices.
Declining meat production in April will likely lead to reduced grocery store supplies in May and June. Grocery stores are likely already rationing their current meat supplies. The supply chain and inventory from the meat plant to local grocery store meat cases is less than a few weeks.
"Significant contractions in meat supplies have often led to substantial inflation of retail beef and pork prices. In the past 20 years, retail pork prices experienced inflation of more than 10% just twice. And neither of those times did we see inflation climb to 20%, which may be coming in the months ahead," added Sawyer. President Trump's executive order to reopen closed meat plants could help stem the tide of additional plant closures and pave the way for closed plants to reopen. Meat processors have instituted several measures to ensure employee safety, reduce the spread of COVID-19 and keep protein supplies moving. However, attracting enough workers to fill the thousands of vacant positions at meat plants across the U.S. may be challenging in the near-term.
For consumers, closed meat plants mean less meat in the grocery store in the weeks ahead. Up to this point, US consumers have been able to rely on grocery stores as many restaurants across the country have closed in response to "stay-at-home" orders in many cities and states. As communities reopen with only about one week of meat supply in cold storage, shortages and stockouts in the meat case could not come at a worse time. Food inflation and a weak US economy is a combination that will leave many consumers in greater financial strain. According to the report, meat supplies for retail grocery stores could shrink nearly 30% by Memorial Day (25 May), leading to retail pork and beef price increases as high as 20% relative to prices last year.
A similar point is shared by Tyson executives, who are expecting meat supplies to come back to a normal level somewhere in the second half of the year. "We’re assuming that these plants, not only ours but others will, in fact, they’ll go down for a period of time and then reopen. So, we are actually looking at an increase in total protein available as we go through the balance of Q3, Q4,", said the company CEO Noel White, quoted by SupplyChainDive magazine. Earlier this week, Tyson President Dean Banks estimated that pork processing capacity is at roughly 50% of normal.
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