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CME: Damaged Tyson Plant Represents About 6% of Overall US Fed Cattle Packing Capacity

13 August 2019

US - On Friday one of the largest beef packing plants in the US was damaged by fire and the event has the potential to cause significant disruptions to both beef and cattle markets, reports Steiner Consulting Group, DLR Division, Inc.

According to data from Steve Kay of Cattle Buyers Weekly, a publication that for decades has kept meticulous records of US plant packing capacity, the Tyson plant in Garden City Kansas can harvest about 6,000 head of cattle per day. All the cattle harvested in this facility are fed cattle.

We think this represents about 6 percent of overall US fed cattle packing capacity - a significant number considering there is very little capacity slack in the industry at this time. The chart below represents our effort to understand fed cattle packing capacity for the main packers.

Top packers at this time process somewhere between 84 percent and 88 percent of all fed cattle in the US. Please note that we simply implied this by taking the maximum daily slaughter this year (~99,500 head) and then calculated the fed cattle slaughter numbers for each plant that large packers run.

Some plants process both fed and non-fed cattle. In that case we assumed a 50:50 split, which may overstate the number of fed cattle they process. Tyson Foods is the biggest beef packer in the US at this time and accounts for around 29 percent of fed cattle packing capacity in the country.

Given its size, the company is a major supplier to both retail and foodservice customers. At this time there are no details as to the extent of the fire and how long it will stay shuttered. Media reports noted significant damage to the roof structure and wire stories quoted a Tyson spokesman that the plant "would remain closed indefinitely".

There are also no reports as to whether product that was already stored in the plants coolers was affected by the fire. This could represent a significant amount of beef that may not enter commerce. It makes no sense to speculate more about this until company officials offer an account of plant conditions and outlook.

The short term effect is that with 6 percent of capacity going dark there will be (potentially) less beef available in the market. End users that normally would get product from this plant now will be serviced by other plants but that will limit supplies in the spot market.

Higher prices will be necessary to either ration out some demand or cause other packers to run extra shifts. Supplies in the spot market will likely be very tight, which normally results in a bidding war from those that are short.

The disruption happened at a time when retailers are gearing up for Labor Day promotions, a time when beef demand generally gets a boost. The choice beef cutout has been trending higher recently and this disruption will likely cause prices to advance further.

As for the impact on fed cattle prices it is generally negative although the extent of the impact will depend greatly on how long it takes to bring this plant back to full production. Different from hogs, where supplies can quickly backup and result in dramatic price declines, feedlot operators have a bit more flexibility.

But the effect could quickly increase the longer this plant stays out of commission and it becomes necessary to adjust the flow of cattle through the entire supply chain. Fort that to happen, higher prices will be needed at the consumer level and lower prices at the producer level.

Today participants in the futures market will likely scramble to understand the true downside risk in the immediate term as well as for the fall market.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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