Oct. 7, 2019
Packing plant fire disruptions fading, Part 2
By Derrell S. Peel, Oklahoma State University Extension livestock marketing specialist
The Aug. 8, 2019, fire that shut down the Tyson beef packing plant in Finney County, Kansas, provoked significant reactions in cattle and beef markets. Markets typically provide strong price responses to a shock such as this in order to initiate actions that repair the market disruption.
The fire caused an immediate loss of fresh beef product into wholesale beef markets which left a variety of beef buyers scrambling to find product and for Tyson to meet contractual obligations. As a result spot boxed beef prices jumped sharply the first week after the fire and peaked the second week after the fire before starting to recede. Choice boxed beef cutout values increased from a weekly average of $216.04.cwt. the week before the fire to a peak of $239.87/cwt, two weeks after the fire. By the last week of September, Choice boxed beef price dropped to $214.51 and has since dropped seasonally lower into early October. Prices for all beef primals increased though the jump was quicker and more sustained for the end meats (chuck and round) compared to the middle meats. In part this is due to the normal seasonality of the products, with ribs and loins typically weakening from August into September while the approach of roast and crock pot season pushes chucks and rounds higher. By one month after the fire, noticeable effects of the fire were mostly absent from boxed beef markets.
Cattle futures markets reacted most dramatically to the fire, which is exactly the role of futures. Both live and feeder futures gapped limit down for two days following the fire. Both markets continued lower until after Labor Day before beginning a sharp recovery which rose to fill the down gaps by the end of September.
Cash feeder cattle markets dropped initially after the fire on the uncertainty about long term impacts on cattle markets. Lightweight feeder cattle prices showed variable recovery through September ending below pre-fire levels on normal seasonal pressure. Stocker cattle prices are steady to higher from September into early October with wheat pasture demand and other market fundamentals driving the market. Heavy feeder prices dropped sharply the week after the fire with recovery beginning by the second week after the fire. By late September heavy feeder prices had recovered to exceed pre-fire levels.
Fed cattle prices took the biggest hit after the fire, as expected, with the sudden loss of packing capacity. Fed prices dropped from $112.37/cwt. the week before the fire to $106.68 the first week after the fire. Feedlots and packing plants resorted to significant logistical contortions to reroute cattle to other facilities, a process that continues. Cash fed cattle prices ultimately bottomed five weeks after the fire at $100.07/cwt before beginning recovery. By the first week of October, fed cattle prices were at $107.12/cwt. Fed prices typically reach a seasonal low in September and are lower in October compared to August. Limited packing capacity will likely continue to restrict fed cattle prices somewhat but it appears the industry has thus far avoided even worse implications of a serious backlog of fed cattle and a pronounced lack of ability to process cattle in a timely fashion.
It appears that after about seven weeks, the majority of outward market reactions to the fire have passed. Certainly, there are impacts and additional costs still being incurred by buyers and sellers to deal with the impacts of the closed packing plant. Though some in the industry were surprised and frustrated with market reactions after the fire, the type and duration of price behavior are exactly what is predicted by market economics. Freely operating markets provide extreme price signals to provoke dramatic reactions to this type of shock resulting in rather quick adjustments to adverse market conditions and recovery from market disruptions.
The impact of dressing percent on cull cow marketing
By Glenn Selk, Oklahoma State University Emeritus Extension animal scientist
October is often the month of calf weaning and cow culling (for spring calving herds). Cull cows represent about 20% of the gross income in commercial cow calf operations. Understanding the major factors impacting cull cow prices is important to the bottom line.
Remember cull cows that are destined to go to the packing house are graded by their fleshiness. In the USDA Market News reports cull cows are reported in four grades: The fattest cows are called breakers; Moderately fleshed cows are boners or boning utility; and thin cows are called leans or lights, depending upon the weight of the cow. There will be price differences among these four grades.
However, within each grade, large variation in prices per hundredweight will exist because of differences in dressing percentage. Cow buyers are particularly aware of the proportion of the purchased live weight that eventually becomes saleable product hanging on the rail. Dressing percentage is (mathematically) the carcass weight divided by the live weight multiplied by 100.
Key factors that affect dressing percentage include gut fill, udder size, mud and manure on the hide, excess leather on the body, and anything else that contributes to the live weight but will not add to the carcass weight. Most USDA Market News reports for cull cows will give price ranges for High, Average, and Low Dressing percentages for each of the previous mentioned grades. As you study these price reports, note that the differences between High and Low Dressing cows and bulls will generally be greater than differences between grades. Many reports will indicate that Low Dressing cows will be discounted up to $8 to $10 per hundredweight compared to High Dressing cows and will be discounted $5 to $7 per hundredweight compared to Average Dressing cows. These price differences are usually widest for the thinner cow grades (leans and lights). See examples from last week’s sale in Oklahoma City National Stockyards: https://www.ams.usda.gov/mnreports/lswoksum.pdf
As producers market cull cows and bulls, they should be cautious about selling cattle with excess fill. The large discounts due to low dressing percent often will more than offset any advantage from the added weight.