Cattle and Hog Slaughter in the wake of COVID-19

A quick follow-up on previous posts about the impact of meat processing plant slow-downs and shut-downs due to COVID-19. The USDA releases daily estimates of slaughter numbers (the data after March 31 are estimates, before that it is “actual”) . If these estimates hold, we’re processing about 24% fewer cattle and about 30% fewer hogs than the same time last year. All else equal, this will put downward pressure on cattle and hog prices and upward pressure on wholesale and retail meat prices. All, of course, isn’t equal. The upward pressure on meat prices will be dampened by the high amounts of pork in cold storage - roughly 20% more than this time last year.

Addendum (4/16/2020)

I’ve had a couple people point out that some of the dip in slaughter numbers might be due to the Easter holiday. In 2019, Easter was on April 21. For context, hog slaughter numbers on the Friday, Monday, and Tuesday surrounding Easter in 2019 were 431132, 327319, and 478008. For cattle, the respective figures in 2019 were: 114286, 113435, and 121216. Here are updated figures.

These 15 Plants Slaughter 59% of All Hogs in the US

Headlines have started to appear indicating the shutdown of meat packing plants around the country as a result of COVID-19.

So, just how concentrated is meat processing and how impactful might a plant closure be? As it turns out, the National Pork Board puts out information on processing capacity. According to their data, the U.S. has the capacity to slaughter 506,470 pigs per day. Almost 60% of this capacity comes from just 15 plants.

These plants are heavily concentrated around Iowa.

Given the size relative to the industry, the closure of any of these plants has the potential to reduce hog prices and increase wholesale and retail pork prices (the economics are explained here). Glynn Tonsor and Lee Schultz’s recent analysis by suggests every 1% reduction in pork processing capacity is associated with a 1.82% reduction in hog prices. Hog prices have already been tumbling over the past couple weeks, potentially reflecting the market’s expectation of some capacity being brought off-line.

Meat and Egg Prices Following the COVID-19 Outbreak

The declaration of a national emergency on March 13, 2020 by President Donald Trump, and the corresponding state stay-at-home measures, caused significant disruptions in retail food markets.  Aside from take-out, many consumers were suddenly unable to dine at restaurants and food service establishments away from home, which according to U.S. Department of Agriculture data, represents about 54% of all food expenditures.  As a result, consumers turned to grocery stores and supermarkets, where the increase in demand, coupled with concerns about future reduced mobility and scarcity, led to a surge in foot traffic and sales. 

              For the week ending March 22, 2020, the number of trips to grocery stores and supermarkets increased 39%, and during each trip, consumers purchased about 12% more items, and spent, in aggregate, about 61% more as compared to the same week one year prior.  Fresh meat and frozen food sales led the increase in dollar sales.  Pork sales increased 101%, beef sales increased 95%, and chicken sales increased 70% for the week ending March 22, 2020 as compared to the same time period in 2019. 

      Increasing food prices suggest the increased demand in grocery establishments appears to have more than compensated for the lost demand at restaurants, at least in the short run.  The figures below report U.S. Department of Agriculture data made available by the Livestock Marketing Information Center on wholesale prices of pork, beef, chicken, eggs.  In each of these cases. wholesale prices began dramatically rising at about the time President Trump declared the national emergency.  For example, wholesale pork prices jumped almost $20/cwt from about $65/cwt in early March to just under $85/cwt by mid-March.  For beef, wholesale boxed beef prices increased about $50/cwt, going from about $205/cwt to over $255/cwt.  Wholesale chicken prices increased a bit over $10/cwt over this same time period.  However, as the figures reveal, the price pressure has already started to subside for beef, pork, and chicken.  In fact, for pork and chicken, price levels are near or below what was experienced at the same time last year. 

The case of eggs reveals a different story.  Wholesale egg prices were about $1/dozen in early to mid-March 2020, approximately in line with prices at the same time in 2019; however, prices have nearly tripled since that time, and by the week ending April 4, 2020, prices were $3/dozen, with the increase showing no sign of slowing yet.  A number of explanations have been offered for the price run-up in the egg market including consumer perceptions about the necessity of eggs and their longer shelf life relative to other animal proteins, dynamics associated with Easter egg buying, legal barriers that prohibited easy re-sale of eggs headed for restaurant markets to grocery, and the high degree of concentration in the egg production industry.

The increases in wholesale meat prices were not initially met with corresponding increases in farm-level hog and beef prices, causing consternation among some producers.  Going forward, increased concerns about illness spread in packing houses is likely to reduce processing capacity, further exasperating this problem, putting downward pressure on livestock prices.  A paper by Glynn Tonsor and Lee Schultz suggests a 20% reduction in processing capacity due to COVID-19 plant shutdowns could reduce cattle prices by 26% and hog prices by 36%. As they note, these effects may already be “baked in” to future’s prices. Moreover, coming into 2020, animal inventories were high, leading to large projected total meat and egg production for the year.  Temporary stocking-up behavior on the part of consumers buoyed demand in the short run following outbreak of COVID-19, providing a respite to the downward price pressure expected for 2020.   However, the loss of restaurant sales, coupled with reduced consumer incomes from a likely recession, and export markets for meat products being hard hit by COVID-19 suggest the general downward price movements witnessed in cattle and hog markets may continue even if wholesale prices rebound should processing capacity be adversely affected by disruptions associated with COVID-19.  

What does COVID-19 tell us about the economics of food waste?

Several months ago, I’d agreed to write an article about food waste, and I’m now finally finding the time (thanks to all the event cancellations) to start writing.

It strikes me that consumers’ food buying behavior in the wake of concerns about COVID-19 reveals much about the economics of food waste. Fearful of reduced mobility and shortages, foot traffic in grocery establishments has increased markedly, leading to stock-outs and empty shelves for many basic foodstuffs. As a result, many consumers have expressed fear and frustration over the stock-outs.

However, prior to the onset of the pandemic, stores were optimizing with the intent of preventing over-stocking. Just-in-time delivery and effectively managed inventories help control costs, and at the same time grocery outlets were also under pressure to adopt such measures (beyond mere profit reasons) to help prevent waste of perishable food items. A system designed to help prevent food waste, however, is not well suited to withstand the large, temporary demand spikes like that seen after COVID-19 hit.

Whatever qualms consumers have about food waste, they were apparently overwhelmed by a more urgent sense of need to stock pantries and refrigerators irrespective of whether some items might later be thrown out. Moreover, if we are under stay-at-home and quarantine measures longer, presumably, we will find ways to store, utilize, and eat the items we’ve stocked up on should scarcity reign (I don’t think it will).

As this discussion helps illustrate, food waste is the result of a complex equilibrium affected by consumers (e.g., preferences for convenience, expectations about the future prices and availability, and food safety concerns) and producers (e.g., cost of holding inventory, cost of transportation and storage affecting temporal and geographic arbitrage opportunities, and liability and reputational concerns) in addition to other factors such as government regulation and technology.

Even in normal times, we may want a little “excess” food in the system, that may go to waste, as a kind of insurance against unexpected events like the one we’re now living through.

A Roundup of Resources: COVID-19 Impacts on Food and Agricultural Markets

With restrictions on travel and in-person meetings, it has been encouraging to see my agricultural economics colleagues take to thew web with a wealth of information for farmers, the food industry, and consumers. Here is a non-exhaustive list of applied research and outreach that might be useful.

• Larry DeBoer from Purdue provided some comments on possible macro-economic impacts at the onset of COVID-19 in the U.S.

• Jim Mintert and Michael Langemeier from Purdue will host a webinar on April 1 on the spring crop outlook in light of COVID-19 events and USDA report releases.

• This piece from Ken Foster and Mike Boehlje at Purdue entitled “Managing in Times of Financial Stress” is as relevant today as it was when it was first written in the wake of the Great Recession

• Roberto Gallardo from Purdue released this publication with some interesting data on rural American's ability to work from home, broadband access, and in the midst of COVID-19.

• Some estimated impacts of COVID-19 on local and regional food markets by Dawn Thilmany, Becca Jablonski, Deb Tropp, Blake Angelo and Sarah Low.

• Trey Malone and Aleks Schaefer from Michigan State hosted a discussion yesterday “to answer the difficult questions the coronavirus global pandemic is having on our food supply chain and the economy.” (I haven’t seen a recording of this posted yet, but will put a link to it if I find it).

• Brian Briggeman, Dan O’Brian, Glynn Tonsor, and Mykel Taylor from Kansas State are hosting a series of upcoming evening Zoom meetings on impacts of COVID-19 on the macroeconomy, grain markets, livestock markets, and land markets.

• Derrell Peel from Oklahoma State and Josh Maples from Mississippi state hosted a webinar on COVID-19 And cattle markets this past Thursday.

• The Farmdoc team at the University of Illinois is hosting a webinar series to discuss the impact of the coronavirus on Midwest agriculture each Tuesday and Friday at 12pm EDT.

• Diane Charlton of Montana State talks about labor issues in agriculture on NPR’s Planet Money.

• Since my post last week on coronavirus and food markets, I’ve been inundated with media requests discuss the subject (see a few quotes in the New York Times, Bloomberg, etc.). I’ve taped segment for ABC’s 20/20 and Freakonomics that should air some time in coming weeks.

Addendum

Several new resources have come in during the past couple days. I won’t try to keep this list up to date indefinitely, but wanted to mention a few more helpful resources.

• Dawn Thilmany at Colorado State and Laurian Unnevehr, formerly with USDA-ERS, gave a webinar on economic impacts of COVID-19 on food manufacturers.

• Here is Marin Bozic from University of Minnesota on COVID-19 impacts on dairy markets.

• A CNBC segment on COVID-19 and food supply featuring Derrell Peel at Oklahoma State, among others.

• I chatted with Dani Nierenberg of FoodTank.