Beef industry stays strong despite supply-chain disruptions

The beef industry should be in good shape. There are plenty of cattle to sell and a high demand for them at the grocery store. And yet, the number of cattle slaughtered is down significantly, 25 percent from where it was at this same time a year ago.

Lee Schulz, associate professor of economics at Iowa State University, said the industry is confronting a couple of bottlenecks that are disrupting the flow of goods from farm-to-table. One of those is that beef packing plants have had to reduce their capacity or even shut down completely because of the COVID-19 pandemic. The pork industry has been hit even harder by the virus, where Schulz said slaughter has been reduced as much as 40 percent from last year.

Daniel Loy, professor of animal science at Iowa State University and director of the Iowa Beef Center, said the closest beef packing plant affected by the virus is in Tama, Iowa, which closed for a few weeks before putting in protections for its workers. The plant has since reopened.

Schulz remarked, 'It was a tremendous shock when packing plants shut down. In times past, pre-COVID 19, a plant might suspend operations for a fire or cleaning. We had that with a Kansas plant back in August. In a scenario like that, where we lose one plant, that production can be absorbed by other packers. The impact can be large, but nowhere near what we're seeing now. In this situation, several plants have closed or reduced their operations.”

Though demand for beef remains steady in the grocery aisles, demand for cattle at the packing plants has fallen because they cannot process as many animals as before. Schulz said this has led to lower prices for cattle and hogs as a result. At the same time, supply of finished beef products has gone down at the grocery store. If supply remains constant, that would suggest the price of beef products should rise. And it has, although there are some complicating factors that have caused some beef products to rise in price but not others.

Schulz mentioned that there has been a shift in who is buying beef. Restaurants have been hit hard by the combination of the virus, consumers wanting to stay home, and orders from the government to serve carryout only. This has meant that cuts of beef originally headed for restaurants have been redirected to grocery stores.

'We have seen the mix of products change at the grocery store because of these availability issues,” Schulz said. 'You may not find beef and pork in the cut or brand you're used to buying. Typically, you might buy bacon in one-pound packages, but now you'll see them in 5 or 10-pound packages [destined for restaurants].”

Schulz said cuts of meat like steak are more commonly consumed in restaurants than at home, but because of this redirection of goods from restaurants to grocery stores, consumers might find that these goods they'd normally order in a restaurant are available at the grocery store, and within their budget.

Schulz and Loy said one reason the cattle industry is weathering this storm better than the pork industry is that cattle producers have more flexibility in when their animals go to market. For instance, Loy said he's conducted webinars with farmers on how to slow down the rate of growth in cattle so they can go to market later in the year. Pork producers don't have the same luxury and are forced with the prospect of having to euthanize their animals.

'We're more flexible in the types of feed that we raise cattle on,” Loy said. 'We can delay cattle going into feedlots by placing them on pasture or hay. Those feedstuffs slow the rate of growth. There is, however, an additional cost associated with that.”

Loy said the beef industry has been affected by the drop in oil demand. Cattle farmers have become reliant on ethanol plants for distiller grains produced as a byproduct of ethanol. Distiller grains represent about one-third of an animal's feedlot ration. But with ethanol production at about half its normal level, there aren't enough distiller grains left for cattle, so farmers have had to find substitutes like soybean meal or field corn.

'The ethanol industry developed in the middle of the first decade of this century, so we've got a generation of cattle producers and nutritionists who don't have any experience with those types of eating programs,” Loy said.

Loy said that the beef industry was doing well before the COVID-19 pandemic. He still thinks it has a bright future once it works through these supply disruptions at the meatpacking plants.