American beef processors and possibly those in Canada face a labour shortage that might be the worst in the two countries’ history. Ironically, U.S. beef processing margins are record large for this time of year. But labour constraints mean slaughter levels are lower than they should be to handle the available supply of fed cattle. This has kept pressure on the prices of those cattle.
The National Cattlemen’s Beef Association, members of the U.S. Congress and the Biden administration remain fixated on a belief that the industry needs more slaughter capacity. But sufficient capacity is not the issue. Lack of labour is. However, those wanting more capacity have not uttered one word about the labour issue and how to address it. Two congressional hearings on July 28 discussed perceived challenges within the beef supply chain. Both hearings focused on packer competition, capacity and the need for greater transparency in cattle markets.
The hearings also exposed a common mistake about packer market share. Many lawmakers take USDA’s four-firm concentration number for steer and heifer slaughter and claim that the four largest U.S. packers control 85 per cent of the total beef market. But the percentage for total commercial cattle slaughter, from which comes all domestically produced beef, is much lower. The four largest firms in 2019 had a combined market share of 73.3 per cent.
The calls to expand capacity fly in the face of the facts. The current maximum daily slaughter capacity at the nation’s 68 largest beef processing plants is just over 133,000 head per day. If they ran at an average 90 per cent of that capacity, they would be processing 119,700 head per day. Kills this year have seldom exceeded 120,000 head per day. NCBA and lawmakers have also ignored the fact that various plans to expand or build new plants, if all are realized, will also add 6,700 head of daily capacity in the next two or three years.
A U.S. House Agriculture Subcommittee on Livestock and Foreign Agriculture on July 28 heard testimony from agricultural economists, land-grant university faculty and cattle industry stakeholders. Many members of Congress echoed NCBA’s long-standing call to expand processing capacity.
Prominent agricultural economist Jayson Lusk of Purdue University addressed the capacity issue in testimony to the committee. He noted how from 2010 to 2015, the total number of all cattle slaughtered fell by more than 16 per cent. The decline resulted from producers cutting inventory as a result of a dramatic increase in feed prices and a drought in some parts of the Midwest, he said. The change in cattle numbers affected the packing sector. There was at the time too much packing capacity relative to the number of cattle and returns to cattle processing took a hit. Some small and medium packers exited because it was no longer profitable and some large packers shuttered plants in an attempt to align capacity with inventory, he said.
Processing capacity in 2020, even if the pandemic had not occurred, was likely to be tight, which contributed to downward pressure on cattle prices, said Lusk. But the industry appears to be in a different phase of the cattle cycle. Cattle inventory is falling. Feed prices are rising. There is a drought in the West. These factors will over time bring cattle numbers closer in line with current capacity. More capacity and fewer cattle will help support future cattle prices. But as the experience of the past decade has revealed, that will not be the end of the story. Government investment in capacity to improve cattle prices might be fixing yesterday’s problem, he said. I concur.