Packing plant fire disruptions fading, Part 2 | Your Cattle

Packing plant fire disruptions fading, Part 2

By : Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist
 
 
The August 8, 2019 fire that shut down the Tyson beef packing plant in Finney County, Kansas provoked significant reactions in cattle and beef markets.  Markets typically provide strong price responses to a shock such as this in order to initiate actions that repair the market disruption.
 
The fire caused an immediate loss of fresh beef product into wholesale beef markets which left a variety of beef buyers scrambling to find product and for Tyson to meet contractual obligations.  As a result spot boxed beef prices jumped sharply the first week after the fire and peaked the second week after the fire before starting to recede.   Choice boxed beef cutout values increased from a weekly average of $216.04.cwt. the week before the fire to a peak of $239.87/cwt, two weeks after the fire.  By the last week of September, Choice boxed beef price dropped to $214.51 and has since dropped seasonally lower into early October.  Prices for all beef primals increased though the jump was quicker and more sustained for the end meats (chuck and round) compared to the middle meats.  In part this is due to the normal seasonality of the products, with ribs and lions typically weakening from August into September while the approach of roast and crock pot season pushes chucks and rounds higher.  By one month after the fire, noticeable effects of the fire were mostly absent from boxed beef markets.
 
Cattle futures markets reacted most dramatically to the fire, which is exactly the role of futures.  Both live and feeder futures gapped limit down for two days following the fire.  Both markets continued lower until after Labor Day before beginning a sharp recovery which rose to fill the down gaps by the end of September.
 
Cash feeder cattle markets dropped initially after the fire on the uncertainty about long term impacts on cattle markets.  Lightweight feeder cattle prices showed variable recovery through September ending below pre-fire levels on normal seasonal pressure.  Stocker cattle prices are steady to higher from September into early October with wheat pasture demand and other market fundamentals driving the market.   Heavy feeder prices dropped sharply the week after the fire with recovery beginning by the second week after the fire.  By late September heavy feeder prices had recovered to exceed pre-fire levels.
 
Fed cattle prices took the biggest hit after the fire, as expected, with the sudden loss of packing capacity.  Fed prices dropped from $112.37/cwt. the week before the fire to $106.68 the first week after the fire.  Feedlots and packing plants resorted to significant logistical contortions to reroute cattle to other facilities, a process that continues.  Cash fed cattle prices ultimately bottomed five weeks after the fire at $100.07/cwt before beginning recovery.  By the first week of October, fed cattle prices were at $107.12/cwt.  Fed prices typically reach a seasonal low in September and are lower in October compared to August. Limited packing capacity will likely continue to restrict fed cattle prices somewhat but it appears the industry has thus far avoided even worse implications of a serious backlog of fed cattle and a pronounced lack of ability to process cattle in a timely fashion.
 
It appears that after about seven weeks, the majority of outward market reactions to the fire have passed.  Certainly there are impacts and additional costs still being incurred by buyers and sellers to deal with the impacts of the closed packing plant. Though some in the industry were surprised and frustrated with market reactions after the fire, the type and duration of price behavior are exactly what is predicted by market economics.  Freely operating markets provide extreme price signals to provoke dramatic reactions to this type of shock resulting in rather quick adjustments to adverse market conditions and recovery from market disruptions.