FORT COLLINS, Colo. (Reuters) - The abrupt halting of the U.S. economy last month closed restaurants overnight and led to a huge shift in consumer demand toward retail, a huge blow for meatpackers and food processors with a primary focus on food service.
The rise in retail meat sales was never expected to fully replace the demand losses in the hospitality industry, but now meat supply at the grocery store could come under pressure as COVID-19 has forced the closure of several U.S. slaughterhouses.
Thus far, the plant closures have mainly affected pork and beef, which account for roughly half of all meat processed annually in the country.
Animals and feed ingredients are plentiful in the United States, but the slaughterhouse bottleneck has and will cause pain for producers of both, as well as for consumers still cooking at home. Retail prices for fresh beef, pork and chicken were already up 5% to 7% on the year as of mid-April.
The ample supply of livestock and products, and now the sudden lack of a market, has forced some producers to make painful decisions to euthanize animals, dump milk, crack eggs and plow under vegetable fields.
U.S. hog producers expanded inventory over the last year, largely on expectations of increased pork exports with China. On March 1, the number of hogs and pigs was record large for the date. However, more than a quarter fewer hogs were slaughtered on average last week versus a month earlier.
The decline in cattle slaughter was even more pronounced, but the slowdown in that sector began before the slaughter numbers really started to plunge, as evidenced by the latest cattle on feed report from the U.S. Department of Agriculture.
Those feed figures may get worse before they get better, and that could increase headaches for U.S. corn and soybean growers, who are already reeling from the sharp loss in ethanol demand. According to U.S. pork industry statistics, nearly 1.2 billion bushels of corn and more than 400 million bushels of soybeans were fed to the country’s hogs in 2016.
Operations at about 20 U.S. meatpacking facilities have been suspended, greatly reducing slaughter capacity. On the pork side, daily production has been cut by nearly a third and it has shown up in the slaughter numbers.
U.S. hog slaughter maintained at anomalously high levels late last year, reaching an all-time record in December for any time of year. That trend continued into 2020, but it was cut short earlier this month.
According to USDA, daily slaughter last week averaged 364,600 head for hogs and 85,200 head for cattle. That is down 26% and 29%, respectively, from the same week a month earlier. Compared with the same week a year earlier, that is a 22% decline for hogs and a 29% fall for cattle.
Weekly records suggest that such a sharp decline in slaughter, outside of normal seasonal fluctuations, is most likely unprecedented. The numbers were even lower in Monday’s daily estimates of 81,000 cattle and 318,000 hogs.
When the shuttered plants reopen, there is a high likelihood that they operate at less than full capacity, at least at first, in order to implement and maintain safety standards, which could slow the recovery in production.
The U.S. Labor Department issued new guidelines on Sunday for U.S. meatpacking and meat-processing facilities, which include measures such as increased employee spacing, temperature checks and additional protective coverings.
USDA published its monthly cattle on feed report on Friday, and the numbers are somewhat unsettling because although anomalies are apparent, they probably do not capture the full extent of the virus-induced crisis in the meat industry due to the timing of the data.
As of April 1, some 11.3 million cattle and calves were on feed for the slaughter market in feedlots with a capacity of at least 1,000 heads. That is down 5.5% from the April 1, 2019, inventory, which was record high for the date.
April 1 cattle on feed was also down more than 4% from the March 1 count, which had been the highest for the date in 12 years. That was an unusual trend since the April 1 number had not been lower than the March 1 total since 2012.
The March 1 to April 1 decline was the largest ever observed for the period due to such light placements of cattle and calves on feed during March, just 1.56 million head. That was the fewest for any month since June 2016.
But for March, placements were by far a record low in data back to 1996, plunging 9% below the previous March low set in 1998.
The year-on-year delta for March placements is even more staggering, with March 2020 dropping 23% below the levels of March 2019. That is tied with January 2007 for the largest yearly decline in the entire dataset for any month.
Seasonally, the number of cattle on feed usually decrease between April 1 and May 1, though the recent declines were only around 1%. May 1 inventory along with April placement data will be published on May 22.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Leslie Adler