Box Beef Hitting Highs, Cattle Income Remains Low

03:21PM May 01, 2020
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Meat packing plants have been ordered by the President to remain open but that doesn't mean they will be operating at full capacity. Several that are closed right now could take time to come back online. It continues to impact the supply chain and affect prices paid at the grocery store. It also hurts producers’ bottom lines.

The cattle industry will receive some COVID-19 relief. The National Cattlemen’s Beef Association sent a letter last week to the U.S. Department of Agriculture urging against payment limitations for cattle producers under the Coronavirus Food Assistance Program (CFAP). Details are still pending on how it will all work.

However, the latest shock to the industry is the daily boxed beef price. On Thursday, it hit a record of $364.62. That is a jump of $30 over Wednesday, a two-thirds increase from the lows in February. For the cattle and hog producers scrambling to find places to process their livestock, the financial losses have been significant.

“Box beef is at $364 and the packer is bidding us 95 cents on the limited amount of cattle that they are buying,” says Iowa cow-calf producer and feedlot operator, Phil Reemtsma. “When the plants get back up and moving, wouldn’t it make  more sense for the government to say, ‘hey, [packers] how about instead of paying 95 cents when boxed beef is at $364, how about you guys pay $1.20 or $1.25 and make them pay [producers to make them whole] rather the government bailing them out. Wouldn’t that make more sense to have the packers pay [cattle producers] a fair price for their cattle? Why does the government have to bail us out? Make the packers bail us out.”

Here’s what it was a week earlier, as well.

The daily spot Choice box beef cutout ended the week on Friday, April 24 at $293.37, which was $54.38 higher compared to previous Friday. That is highest number ever recorded before the total this week. Last year, it was $232.99 on the same Friday.

The slaughter decrease means packer demand is much lower and prices paid to producers are down too.

“Producers lost $260 per head last week on a cash basis,” says Drovers editor, Greg Henderson. “Packers as we know the beef cut soared higher last week. Packer profits were in that $770 per head range. Again, [the economists and companies who calculates these numbers] emphasis [how] we do not know the cost structure change at the packing plants has been since COVID-19. We know it has increased their cost. Still, we know that the packer profits are excessive.”
 

In March, cattle producers were seeing a $24 per head profit.

Now, a group that says it fights for the independent U.S. cattle producer is calling for change. R-CALF sent a letter to President Trump. The group is calling for leaders to conduct a review of the beef supply chain and look into whether a restructuring of the meatpacking industry is needed.
 
R-CALF talks about the seriously depressed prices for America’s cattle farmers and ranchers in the letter:
“Now, the coronavirus upheaval has intensely worsened the financial and economic conditions of America’s cattle farmers and ranchers. Many will not make loan payment deadlines and many of those will not survive without immediate intervention.”

Drovers reports over the past two weeks, harvest capacity at the nation’s beef packing plants have slowed to nearly 60% of its normal levels. Companies like Tyson Foods have warned of meat shortages. Some ag economists say the longer processing plants shut down, the bigger impact it will have on availability.

Lee Schulz, an economist at Iowa State University, says shoppers could see higher prices. He says the meat may also be packaged a little differently.

“Those may be large packages that were intended for food service that now are at the grocery store,” says Schulz. “If you have the freezer space, are you prepared to buy full loins? Are you prepared to buy several racks of ribs or large packages of bacon instead of one pound packages of bacon? The product mix may certainly be different and there may not be some certain products or brands available when you go to the grocery store.”

What is the situation right now at the auction barn for producers? Bob Larkey is the owner of Maquoketa Livestock Sales in Iowa. Bob says he used to call auctions six times a month. Now, he’s down to just one. He has been auctioning cattle for 60 years. He says he’s selling less than half of what he normally sells.

“You can only lose money for so long,” says Larkey, owner of Maquoketa Livestock Sales. “Sooner or later, you have to say, ‘Whoa.’ I’ve seen some lower drops but never nothing like this that affects everybody.”

For producers, the situation is just as dire. Larry Johnson is the owner of Johnson Family Farms, also in Iowa. He says he normally sells 500 to 800 cattle every week.

“We have sold nothing the last five weeks,” says Johnson.

 

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