The price margin between wholesale meats and livestock continues to increase due to slowed processing capacity.
The global COVID-19 pandemic has injected never-before-seen uncertainty into the animal protein markets. Producers face depressed livestock prices as processing capacity declines, but prices at the meat counter are increasing, widening the gap between the two.
AFBF Economist Michael Nepveux says that labor struggles at meat processing facilities are limiting the number of animals being processed. Nepveux states, “One thing that creates is almost an immediate oversupply of animals trying to come to market at this point. So, you’ve seen dramatic declines in fed cattle futures as well as lean hog futures. At the same time, since there’s been a reduction in processing capacity, you’ve also seen the wholesale prices of beef and pork pretty much skyrocket.”
More than two dozen processing plants implemented closures of various lengths because of COVID-19, and facilities are slowing processing speeds to ensure worker safety.
According to Nepveux, “If you look at cattle and hog slaughter, you can kind of use those as a proxy for how much actual decline in capacity we have seen...we’ve seen weekly cattle slaughter drop almost 40 percent and weekly hog slaughter drop 45 percent.”
The cap in wholesale meat prices and livestock prices prompted President Trump to ask the Department of Justice to investigate.
“President Trump announced that he has asked the DOJ to look into price fixing or any potential manipulation by the processing facilities. Basically, what he was looking at is the spread between the wholesale price of beef and pork and the prices that producers are receiving,” Nepveux said.
Over the last month, weekly choice cutout values soared above last year’s number and the five year average.
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