Monday’s CME cattle futures opened and locked limit lower on reaction to Tyson was forced to close its Holcomb, Kan., beef processing facility due to Friday night’s fire. In the short-term, analysts say the fire will be bearish for cattle prices and bullish beef prices. Futures contract limits expand to $4.50 for live cattle and $6.75 for feeder cattle futures tomorrow.
For its part, Tyson affirmed it would work to reopen the Holcomb facility and is “taking steps to move production to alternative sites.” Yet, traders realize that even in the best of scenarios, daily cattle slaughter will drop in the near-term with the loss of operations at Holcomb. The plant has a capacity of 6,000 head per day, though actual slaughter numbers are likely lower.
According to CattleFax, Tyson's Holcomb plant accounts for 6% of total U.S. fed cattle packing capacity, and 23.5% of Kansas fed cattle packing capacity. CattleFax also noted the growing supply of finished cattle stood at 11.5 million head July 1, which was record large. About 21% of U.S. total cattle on feed are in Kanas.
In a statement, the Kansas Livestock Association asked the National Cattlemen's Beef Association to make contact with the Commodity Futures Trading Commission. NCBA made the regulatory agency aware of the situation and contacted the office of U.S. Ag Secretary Sonny Perdue to apprise USDA of the plant fire.
Alternative Tyson facilities are located in Amarillo, Tex., and Lexington, Neb., though both are three-plus hours from Garden City, Kan. The industry anticipates other packers may pick up the slack by adding Saturday shifts, but no announcement has been made. While the industry may hope other plants could pick up the slack, America's packing industry was already struggling with significant labor shortages, and expanded hours at other plants may prove problematic.
Tyson has not announced a timeline for the plant repairs, but industry speculation was rampant Monday. The low-end of such speculation is two months.
Sterling Marketing president John Nalivka said U.S. beef packers were running at about 91% of capacity before the fire, and absorbing cattle from the Holcomb plant would push packer capacity utilization to about 96%. He said the beef industry is set to harvest about 26 million cattle this year, and Tyson’s Holcomb plant accounts for about 5% of that total.
“It will definitely hurt front-end demand,” Nalivka told Drovers. “There’s the potential that with Holcomb out of commission the marketing pace will slow down and carcass weights will increase. That could certainly take the bloom off this fall’s fed cattle market.”
Tyson Foods' stock price was unchanged Monday at about $88.36 per share, while the Dow Jones Industrial Average was down 1.5%.
If a silver lining is visible in the Holcomb tragedy it may be the fact most feedyards are current in their marketings. Analysts say cattle in northern feedlots are especially current, and the pace of slaughter this summer has been very good.
While near-term cash cattle prices will come under pressure until the loss in slaughter capacity is absorbed, analysts also believe boxed beef values will increase going forward. That could also boost packer profit margins, which were already in the exceptional category, which will further incentivize packers to expand their Saturday operations.