Grocery stores may soon face meat shortages. Hogs and chickens are being euthanized. Cattle are being put out to pasture. And America’s storage freezers have more ground beef, chicken breasts and legs, french fries and onion rings than ever.
The COVID-19 pandemic has thrown a wrench into the United States’ supply chain, having wide-ranging results that will likely hurt both farmers and consumers, but could result in wider margins for America’s largest food companies.
Virus outbreaks in packing plants have led to more than 2,200 infected workers at 48 separate plants, slowing work at the plants and leading to lower prices for livestock. Hog prices are down about 50 percent since the beginning of 2020, while cattle prices are down about 30 percent.
But on the consumer end, wholesale beef prices are reaching record highs, up 20 percent in the last week.
“Producers are worse off. The prices they’re getting are lower. Consumers are worse off, they’re gonna pay higher prices,” said David Anderson, an extension economist at Texas A&M.
In the middle are Tyson, JBS, National Beef and Cargill, the nation’s four largest meat producers, in whose plants the outbreaks are occurring. Pork margins have increased 340 percent since April 1, according to Bloomberg.
“If the price they sell for goes up, and the prices they pay go down, it might imply they’re making more money,” Anderson said. “If you have a plant where the workforce is not sick and you’re still open and processing, you are likely very profitable. If you happen to be shut down, that plant is losing a lot of money. It’s possible that’s enough to offset the plants that are shut down.”
Earlier this month, the U.S. Department of Agriculture announced it will investigate meat packers’ margins amid COVID-19, as well as a fire at a major meat processing plant last year.
Last week, 22 state cattlemens’ associations asked Attorney General Bill Barr to have the U.S. Department of Justice take that investigation over.
“The nature of previous and current concern in both situations is extreme market degradation to the producer segment quickly followed by sharp increases and unseasonal profitability to the packing segment through boxed beef prices,” the letter said. “The repeat nature of these market reactions absolutely emphasizes how the production sector of the industry is exposed to the highest potential for risk with little-to-no leverage to change that risk position.”
Frozen food a result of supply chain issues
With restaurant sales slowing down amid COVID-19, America’s storage freezers have more beef, chicken breasts and legs, french fries and onion rings than at any point in history, according to numbers released by the U.S. Department of Agriculture on Wednesday.
Even as grocery stores face shortages and the potential for a global food shortage increases, the more than 800 public and private freezers that report to the USDA were as full as ever at the end of March.
Jayson Lusk, an agricultural economist at Purdue University, said in a FarmDoc Daily webinar on Tuesday that a lot of that storage increase has to do with complications related to consumers switching from restaurants to grocery stores, and eventually some of those stocks will be sent to grocery stores.
There are also very high amounts of pork, cheese and other items, though not quite records. A lot of the food in cold storage is packaged in a way that can’t be easily used by consumers, however.
In addition to euthanizing chicken and hogs, some farmers are also dumping milk into farm fields because there’s just not the demand with school lunches, one of the largest sources of milk sales. Those small milk cartons can’t just be switched to other forms of milk.
“It’s not like they can suddenly flip a switch and start shipping out gallon jugs,” Lusk said.
About 56 percent of consumer spending on food happens at restaurants, Lusk said. But even as grocery stores replace those restaurant meals, people are spending less on meat than they were overall. For example, consumers are buying more meat products at stores, but only about 30 percent more than they were at the same time last year.
“That’s not enough to compensate for the losses of sales we’ve seen in the food-away-from-home market,” Lusk said.
Overall, food expenditures at grocery stores are up about 10 percent, he said. The largest increases are things like frozen foods and cans of beans and lentils.
Lusk said for now, there seems to be plenty of food, but any changes in production this year would likely be felt in the future. Still, so much food is grown in so many places that an outbreak in a few places isn’t going to leave Americans foodless.
“Agriculture is a seasonal business. What we have in storage now was determined last year,” Lusk said. “By and large agriculture production is spread out and a lot of it is in storage.
Record frozen foods not a long-term solution
Lusk said the large amount of food in frozen storage is good for some stability.
“If food got scarce, there’s inventories we could bring out of storage and onto the market,” Lusk said.
But Anderson pointed out that for items like beef, 511 million pounds is a lot, but only a fraction of the 27 billion pounds of cattle that are slaughtered each year.
“That’s a week’s worth of how much beef we eat,” Anderson said.
The Daily Livestock Report from Steiner Consulting Group said overall, the amount of meat in storage is high, but not too great.
“The reality is that this is a relatively small buffer given monthly demand from a population of +330 million people,” the report said. “Over the years US food supply chains have been streamlined and just in time inventory is now a fact of life. Often the supply in cold storage represents a product that is staged before it goes to export or represents excess supply in times of a slowdown in demand.”
About 11 percent of beef in the U.S. is imported and about 11 percent of beef is exported, Anderson said. That’s usually because they’re trading cuts, more steaks overseas and more ground beef comes to the U.S.
Overall, the U.S. is a net exporter of food of about $140 billion, and the U.S. could leave much of that food here if it’s needed, Lusk said.
But supply disruptions that impact trade could also mean shortages of items that are imported: almost all coffee, cocoa and spices; the majority of fish products; and about half of fresh fruits, mainly bananas and grapes, Lusk said.
“The places we’re having problems are the places we never think about,” Anderson said. “We suddenly have all these bottlenecks.”
Animal slaughters
Cattle are less likely to be euthanized than hogs and chickens because they have more value and longer life spans, Anderson said.
Chickens generally live for 42 to 60 days before getting sent to the packing plants. Hogs generally live for about six months.
“There is a very short period of time to grow them,” Anderson said.
Additionally, chicken and pork producers generally have less storage room than cattle producers and have space constraints if the animals live longer than they’re supposed to.
Cattle, meanwhile, usually live for about 18 months, and they can be fed for longer, which leads to higher weights, which could lead to an even higher surplus of meat, further depressing prices.
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