NASHVILLE, TENN. (RFD-TV) — All eyes will be on cattle markets today after they opened limit lower on Monday after major news from packing giant Tyson. The company announced the closure of its Lexington, Nebraska, beef plant and will turn its Amarillo, Texas, plant into a single full-capacity shift, causing ripples in the industry. Steve Georgy, the president of Allendale Inc., told RFD-TV News this will be something to factor in during the coming days.
“It is something that we need to continue to watch, right? And we need to get through this,” Georgy said. “How low does this market go in the near term? I’m not quite sure. Right? That door is only so big when everybody wants to jump out of it. And so, we need to kind of flush this thing out, find out where that low is. I still feel like we’ve got a good run ahead of us yet, but I don’t know where that low is going to sit here. This rhetoric we’ve got to deal with over the next however long, especially with lighter volume coming up, is something that is very real.”
The move comes as the U.S. cattle supply dwindles and just weeks after President Donald Trump called for an investigation into the “Big Four” meatpackers, which includes Tyson.
Traders are closely watching the fallout from the Tyson announcement. According to Brian Hoops with Midwest Market Solutions, there is still time to recover, but he warns that the closure is not good news for the cattle complex.
“We’re hearing talk, we could be down pretty sharply here for the next couple of days, based on this news,” Hoops said. “Now we have some time to adjust. It isn’t until January, but it takes a large amount of our kill away. We’ll probably become more efficient. But again, less competition like this -- it doesn’t help the consumer prices, but it should put some pressure against our futures markets. But overall, it’s certainly not good for our industry.”
There is something else putting pressure on cattle.
The most recent Cattle on Feed report from the U.S. Department of Agriculture (USDA) shows inventories are down two percent from last November. Placements are down as well, falling 10 percent in October and hitting the lowest level since the report began in 1996. Analysts believe a drop in placements could tighten fed cattle supplies later next year, and any rebuilding efforts would take at least two years before showing.
The report triggers questions about the future of U.S. cattle production. Livestock expert and friend of the show, Dr. David Anderson, a livestock economist with Texas A&M AgriLife Extension, says even though Nebraska now feeds more cattle than Texas, the closure does not signal a rapid herd rebuild in the Lone Star State.
“You would think that the high prices we see for cattle today, calves today, would cause some expansion. Yet, you know, we have some reasons for a slow expansion,” Anderson said. “And one of the things we have going on, if you look at the Drought Monitor, we have some dry conditions. You know, we continue to have urban sprawl, things like that, that’s taking more ranch land out. I think you have to wonder how much expansion we can do in cow numbers here versus other places.”
Anderson says the move did not come as a surprise, pointing to shrinking cattle numbers, weak packing margins, and efficiency challenges revealed in November’s Cattle on Feed.
“It’s also interesting, you note [...] the USDA’s cattle-on-feed report came out,” Anderson continued. “And I think, if I remember right, Nebraska now has more cattle on feed than Texas does. And that’s been headed that direction for a while, particularly with the closure of the border with Mexico to import feeder cattle from Mexico. That particularly had a hard hit on numbers in Texas and the southwest feedlots. I think it’s finally caught up to where there’s now more, a few more on feed in Nebraska than here.”
Cattle may be front and center for traders, but Hoops is also watching grain action out of Brazil. Brazil has made headlines in recent days. The White House recently issued an executive order lowering the tariff rate on several agricultural goods from Brazil. The weather has been cooperative there, allowing South America to set the stage for U.S. competition in both beef and grain production.
“Where things have kind of gotten a little dry, and they’re just going to start into their monsoon season,” Hoops explained. “And as we get into the early part of December, that’s what the trade is starting to focus on. That’s when we talk about their key reproductive phases. Of corn and soybeans. Planting is 80% done on their soybeans and their first corn crop; 88% seeded in Brazil. Argentina is a little further behind, but they will be making progress here in the next several days and in the weeks to come because they’re pretty dry until the 6 to 10 day. So, they should make some good headway.”
The order removes the extra 40 percent tariffs placed on Brazil’s agricultural products earlier this year. It also restores the lower rate on products such as fresh and frozen beef, coffee, fruit, and fertilizer.
