On August 9, a fire closed Tyson Food’s beef packing plant near Holcomb, Kansas. Drover’s Daily reports that the plant’s operations manager made the call to the fire department at 8:35 p.m. that evening. Later that night, an alert from the Garden City fire department stated that roof collapse was imminent, as the fire had breached the structure’s roof.
Tyson Foods said the fire had started in the box shop. No injuries were reported, which is good news because there were about 1,200 employees at the plant that night, including 400 on the harvest shift, Drovers Daily reports. Tyson said it will be paying full-time employees weekly until the plant is up and running again. But the plant will be down indefinitely, Tyson said.
I’m sure many readers will have their eyes on bigger risks and challenges than the Tyson plant fire this fall. But, of course, Canada’s beef industry is tightly integrated with the U.S. As Deb McMillin notes in her September market summary column, the Tyson plant handles six per cent of U.S. kill, and the fire did pressure technical and cash markets. So I thought I would provide a bit more context around this fire.
Randy Blach, CEO of Cattlefax, spoke at the Canadian Beef Industry Conference in Calgary the week after the fire. He pointed out that the U.S. has record numbers of cattle on feed today — in fact, they have all year, he said.
Shackle space was already very tight before the fire, Blach said. The U.S. was slaughtering over 30 million head a year in 2010. But drought led to a decline that bottomed out at 23 million head in 2015.
“Sometimes as producers we forget how difficult it was for the packing side of the industry as we come through these time periods,” said Blach. “We didn’t have enough animals for ’em. We were closing packing plants right and left.”
That 2015 decline closed five major packing plants. Since then things have picked up, and the U.S. is basically harvesting as many cattle as in 2010. The remaining plants were already running at full bore before the fire, said Blach. Right now the packing plants can slaughter 97,000 head daily. But on a 40-hour week, they have been harvesting six per cent more than what they can harvest on a five-day week, he said.
“So we’ve been running these plants hard on Saturday already,” he said. In fact, most plants have been running double shifts on Saturday every other week.
“That is difficult work. Labour is a major, major issue when we talk about this,” said Blach.
The industry will just have to work through it, said Blach, which means moving cattle all over the place to get them to harvest. To put this into perspective, the Tyson plant slaughtered around 30,000 head a week.
The important point for those a bit removed from packing and feeding is that this is a significant disruption, Blach said. It means some uncertainty, and that likely means price risk.
The National Cattlemen’s Beef Association (NCBA) has posted a letter on its website directed to Heath Tarbert, chair of the Commodity Futures Trading Commission, asking the commission to “keep an even closer eye on the cattle markets to ensure that no market participant tries to use the uncertainty to manipulate or illegally take advantage of the situation.”
The letter, signed by Colin Woodall, senior vice-president of government affairs for the association, adds that the NCBA is not making any accusations, but simply asking the commission to remain vigilant.
“Given all the other market challenges our industry is facing, we cannot afford to have markets that don’t work. It is imperative to the livelihoods of American cattle farmers and ranchers,” writes Woodall.
Drovers Daily also reports that Jennifer Houston, president of NCBA, sent an email to NCBA members outlining other actions the association has taken to address the situation. NCBA has asked the National Economic Council to help with “regulatory flexibility.” The association has asked the U.S. Department of Transportation to allow trucks to transport live cattle to other plants by providing an Hours of Service waiver. NCBA has requested support and flexibility from Secretary of Agriculture Sonny Perdue’s office, USDA leadership and Senate and House Ag Committee staff.
The good news is that, as McMillin points out in her column, North American feedlots have been current. But that will likely change. One ponders what would happen in Canada if we lost a major plant for several weeks.
The other potential bad news is that while beef demand has been strong (because, as Blach puts it, consumers have had “jingle in their pockets”), there are some signs of a coming economic contraction. Jerry Klassen covers this and other market risks in his column for our September 2019 issue. He notes that cattle producers need to be “prudent risk managers.” Good advice, given all the volatility in international relations and everything else these days.
It’s unfortunate that producers in the Maritimes don’t have access to the price insurance/risk management programs available in other regions. To me, it seems like a big disadvantage. Market risk is a given in the beef industry and producers need effective tools to cover some of that risk.