Threat of U.S. Meat Shortages Escalates With Another Plant Down

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© Reuters.  Threat of U.S. Meat Shortages Escalates With Another Plant Down © Reuters. Threat of U.S. Meat Shortages Escalates With Another Plant Down

(Bloomberg) — First, it was just one plant shutting down. But now, it’s at least eight major U.S. meat facilities that have seen halts in the space of a few weeks. And those voices previously assuring Americans that supplies would be fine are now ringing the alarm over shortages.

Tyson Foods Inc (NYSE:). said Thursday it was shutting its beef facility in Pasco, Washington, while team members undergo testing for Covid-19.

That’s adding to an avalanche of news that’s hit in just the past day. Tyson closed two of its key pork plants. Case counts are continuing to mount, including in Canada, where industry groups are saying they’ll probably hold back some supplies usually exported to the U.S. Meanwhile, the head of JBS SA, the world’s top meat producer, warned of shortfalls.

The U.S. government on Wednesday also pushed out its monthly figures on frozen food inventories, which stood in sharp relief against the backdrop of closures. One figure in particular might give even the naysayers pause.

Combined pork, beef and poultry supplies in cold-storage facilities now stand equal to roughly two weeks of total American meat production. With most plant shutdowns lasting about 14 days for safety reasons, that raises the potential for deficits.

In March, when U.S. shoppers were clearing grocery shelves amid lockdowns, frozen pork in warehouses slumped 4.2% from February, the biggest drop for any March since 2014. That happened before the meat plants started closing.

“For all the talk of cold-storage supplies, it’s just never a lot,” said Bob Brown, an independent market consultant in Edmond, Oklahoma.

With the recent Tyson closures, about 18% of hog-slaughtering capacity is completely off line, and there are also additional slowdowns at pork, beef and poultry companies across the nation.

“When a facility closes, the availability of protein for consumers across the nation will only decrease,” said Steve Stouffer, head of Tyson Fresh Meats. “Consumers will see an impact at the grocery store as production slows. It also means the loss of a vital market outlet for farmers.”

Meat prices are surging on the disruptions. But with slaughterhouses closing, farmers don’t have a market for their animals. That’s causing hog futures to drop, potentially creating a situation where pigs get euthanized and buried as supplies back up. Meanwhile, retail costs may rise as grocery stores mandate rationing on pork chops and other products.

Things are so dire that Iowa, the biggest hog state, activated the National Guard to help protect supplies.

“Meat shortages will be occurring two weeks from now in the retail outlets,” Dennis Smith, a senior account executive at Archer Financial Services, said, citing industry sources. “There is simply no spot pork available. The big box stores will get their needs met, many others will not.”

On Wednesday, Tyson said it was shutting pork facilities in Iowa and Indiana. Outbreaks have also forced closures for JBS SA in Minnesota and Colorado and Smithfield Foods Inc. in South Dakota. A Tyson plant in Columbus Junction, Iowa, has resumed some operations after an earlier halt, as is the case for a National Beef Packing Co. facility in the state.

Hormel Foods Corp (NYSE:). on Wednesday said that multiple employees at its Jennie-O turkey plant in Willmar, Minnesota, tested positive for coronavirus. The plant is continuing to operate.

“We may see a meat-supply issue ahead, depending on the number and the size of plants shut at the same time,” Gilberto Tomazoni, chief executive officer of JBS, said in a webinar sponsored by XP Investimentos. While at this point it’s hard to predict what will happen, continuous plant shutdown may spur a meat shortfall, he said.

“The virus won’t go away tomorrow,” he said.

Shutdowns for slaughtering plants are cascading through meat supply chains and causing weird dislocations for prices — finished products are surging, while farmers are getting paid much less for animals.

Prices for pork bellies, the cut that’s turned into bacon, more than doubled in just the four days through Tuesday on supply concerns. With so many fewer hogs moving through slaughter, Smithfield Foods had to shutter facilities in Wisconsin and Missouri that turn pork into products like bacon and sausage.

Meanwhile, prices for the hogs themselves are plummeting. There are way more pigs than can be processed right now, so animals are backing up on farms. Hog futures traded in Chicago are down about 14% in April.

Meatpacker Margins

That means sky rocketing margins for meatpackers — the folks who do the slaughtering and turn pigs into chops and bacon. They’re paying less to farmers to get the animals, and then getting higher prices for their finished products. Pork margins are up about 340% since April 1, according to data from HedgersEdge.

Some meatpackers are giving raises and bonuses to workers, in part to protect against rising absenteeism at plants.

Shutdowns haven’t been limited to the U.S.

Almost half of Canada’s beef-processing capacity has been halted after a closure for Cargill Inc. this week in Alberta. A JBS plant in the province has also slowed production. Many ranchers in the region have been left with nowhere to sell their cattle. Canada exports about 50% of its beef.

“The solution, of course, is to make sure the plants can be back up and running as soon as possible,” Marie-France MacKinnon, spokeswoman for the Canadian Meat Council, said in an email.

©2020 Bloomberg L.P.

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