Tags: Coronavirus | expensive | meat | supply | woes | year

Get Used to Expensive Meat With Supply Woes Lasting All Year

Get Used to Expensive Meat With Supply Woes Lasting All Year

(Colby Lysne | Dreamstime.com)

Friday, 01 May 2020 06:03 PM

U.S. shoppers are paying 13% more for T-bone steaks than last year, at $7.47 a pound. Ground chuck is up 28%. Prices for pork-sausage breakfast links and patties climbed 13%.

This is the new reality for American meat eaters in the coronavirus pandemic.

Donald Trump’s executive order will reopen meat plants struck down by outbreaks, but social-distancing measures will keep slaughterhouses limping along at reduced production rates. The shortfall in output could run as high as 15% even after plants are back in business, Agriculture Secretary Sonny Perdue said, without specifying how long that could continue.

Consumers should probably prepare for more sticker shock.

“You’ll see an impact now, but you’ll also see blips in the future. We could see this go into 2021,” said Ryan Bernstein, senior vice president of McGuireWoods Consulting who also operates a family farm in North Dakota.

It only took a month to break the U.S. meat supply chain. Shutdowns at major slaughter plants started in early April. Even though it was just about a dozen closures, producers have such a stranglehold on output that it leaves few remedies when even a handful of facilities are down. Grocery-store shelves have run empty, and farmers were forced to destroy tens of thousands of animals.

At R&R Quality Meats & Seafood in Redding, California, retail manager C.J. Lefort is paying about double for boneless chuck roast than he was just a few weeks ago. So far, he’s limiting how much of those higher costs he passes on to his customers, but he doesn’t know how long he can keep that up.

“There’s definitely some worry on our end -- what it’s going to end up costing us to purchase meat,” Lefort said. “We are seeing the supply dwindle pretty quickly and looking at our replacement costs and going, ‘What are we going to do?’”

Wholesale beef has jumped to a record high, and pork surged 55% in April to the highest since 2017. That’s beginning to translate to higher grocery bills, according to protein producers. Pilgrim’s Pride Corp. estimates retail costs are up by about 20% or more for red meats like hamburger and pork chops.

The longer-term implications for prices will come from the knock-on effect that ranchers feel. When slaughterhouses slow their run rates, it means fewer animals can go to market. That forces livestock farmers to rein in their own production. Ranchers are slowing expansion and holding back cattle on pastures. Some hog producers are resorting to culling.

It’s usually younger animals that are destroyed, since farmers haven’t spent money to feed and raise them yet. If a producer euthanizes piglets, it means fewer hogs available for slaughter down the road. That series of dominoes means prices can stay elevated for longer because it takes a while for hog and cattle herds to rebuild.

What’s more, the whole cycle could repeat itself if workers continue to fall sick and plants have to further reduce capacity because of a labor crunch.

Markets are pricing in an outlook for continued disruption. Wholesale prices have kept climbing since Tuesday, when Trump signed the executive order to secure meat production. Beef jumped 11% in the two days to Thursday, and pork went up 14%, government data show.

Higher meat prices are the latest turn in the pandemic era that exposes inequalities among Americans. While middle-class consumers will feel the pinch, the rapid rise in pork and beef could mean lower-income families will reduce their protein intake, especially as unemployment climbs.

That’s especially true because the ironic twist in all this is that cuts that are usually considered cheap could see the biggest price increases. Meanwhile, expensive products like filet mignon may not see as sharp gains since restaurant demand has dried up.

While Secretary Perdue said plants will reopen in days, full production can’t come back with the flip of a switch.

Slaughterhouses are being retrofitted with physical barriers to keep workers safely away from each other. Employees will need to be tested, and companies are waiting on deliveries of essential protective gear. Plants will also likely continue to run at reduced capacity because of social-distancing measures.

On the farmer side, the lag time is much longer. Now that mass culling is taking place, it disrupts the normal flow of animals, especially to make pork and beef. While poultry producers can take a fertilized egg and have a market-ready chicken in about six to nine weeks, red meat is a protracted process.

Hogs have a gestation period of roughly four months, and then it’s another six before pigs are ready for market. Calf gestation is nine months, with about 15 to 24 months before the animals are big enough to slaughter.

“It’s difficult to envision that the meat processing industry can catch up quickly from where they are now,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence. “That’s not something that can happen overnight.”

To be sure, ample chicken supplies can help make up for pricey red meat.

While there have been cuts to production at poultry plants and reports of sick workers, the industry hasn’t seen major closures. Chicken production in the nation is down about 5% from a year ago, Pilgrim’s Pride Chief Executive Officer Jayson Penn said. That compares with output declines for other proteins of 35%, he estimated.

“Pork and beef is going to be expensive, and chicken is going to look more attractive than normal,” said Mike Cockrell, chief financial officer of poultry company Sanderson Farms Inc.

The other thing that can help ease supply tightness: most restaurants are still closed for dining in, and take-out menus are often more limited. That means less demand from chefs, which gives some wiggle room for plants not running at full capacity, said Bartashus of Bloomberg Intelligence.

For meat processors like Tyson Foods Inc., higher prices for consumers usually translate into higher profit margins. While the company’s shares are down about 30% in 2020, they’re expected to “generate an excellent return in coming months” for investors willing to look past near-term volatility in protein markets, Heather Jones of Heather Jones Research said in a note, leaving 2021 estimates unchanged.

But for consumers, there could be questions over whether beef is still what’s for dinner.

Even before the virus-triggered shutdowns, cattle farmers were already holding back placing animals into feedlots to fatten them up for market. With the slaughter disruptions, those placements likely declined further in April, said Rich Nelson, chief strategist at Allendale Inc. That limits supplies of fully grown cattle that meat packers can bring in later this year.

For beef, that means “ridiculously tight supplies in September through December,” he said.

© Copyright 2021 Bloomberg News. All rights reserved.


   
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U.S. shoppers are paying 13% more for T-bone steaks than last year, at $7.47 a pound. Ground chuck is up 28%. Prices for pork-sausage breakfast links and patties climbed 13%.
expensive, meat, supply, woes, year
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2020-03-01
Friday, 01 May 2020 06:03 PM
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