Boxed beef margins hit record levels
Meat industry analysis company Urner Barry has released the following report about boxed beef prices in the wake of last week’s fire at a Tyson beef plant in Holcomb, Kan., as well as other factors affecting the beef industry:
“Boxed beef margins hit record levels Friday. The last leg up in the run is almost entirely driven by the reaction to the Tyson Food's Holcomb, Kansas plant fire late the previous Friday and closure of the facility for an extended, unknown period. Before we expand on that, let's look at what set the table to start in quick fashion because these are topics we have covered if you have been reading our comments for some time.
“In mid-summer, the industry started to see a contra-seasonal trend of the widening of the choice and select spread. Weather delayed the start of the summer demand period into a time that cattle marketings were more current than they have been in a long time. The reduction in grading as a result tightened choice supply when more and more customers were looking for it. Many believed this would continue through the balance of the year given the fundamental drop back of a solid economy.
“Fast forward to last week and retailers started to aggressively buy for planned features for Labor Day. This is typically a strong price period for beef and 2019 was not going to be an exception. Then news broke late Friday, August 9, that a beef plant in Holcomb, Kansas caught fire. It was reported that this plant was responsible for 6,000 head per day, or roughly 4-5 percent of cattle slaughter.
“Cash cattle prices plummeted as a result of the short term disruption. While the industry may be able to make up these numbers, if they can move the animals around, it is no guarantee given labor and capacity issues. Buyers of beef were quickly scared of the idea of scarcity of product in the market at a time when they really need it. Packers used this leverage to push prices up significantly every day. Cutout values were largely in the green behind middle meats and grinds, but the strength was broad based.
“As a result of the confluence of these factors, margins shot up quickly. In fact, in one week, they gained over 61 percent. There were only 17 instances in the last five years ins started greater than $20.00/cwt and moved over 30 percent in five days. And in only one instance in May 2017 did the margin gain more in a five day period.
“This unprecedented move should continue until the industry normalizes again. But it may take some certainty with transparency to get it done.”
Source: Urner Barry