The Scale of the Problem

With numerous stories emerging about the the bottlenecks associated with the closure of meat packing plants, my sense is that many consumers and journalists have a hard time grasping the nature and scale of the problem. Here’s a little primer.

Poultry, hog, and to a somewhat lesser extent, cattle, production operates on a just-in-time basis.  From the day a sow (a mama pig) becomes pregnant, a chain of events is set in motion that will result in a pig being sent to the packing plant in approximately 300 days.  The well-orchestrated supply chain involves the coordination of many players operating in a timely manner.  Once piglets are born, they move to a farrowing house for 3 weeks.  Then, they are moved to another barn or farm in a nursery for 7 weeks.  After that, hogs are moved again to growing or finishing barn for about 16 weeks.  Check out this useful graphic from the National Pork Board.

If the finished pigs, who weigh about 280lbs, are unable to head to the packing plant, there is no room in the barn to receive the new batch of pigs from the nursery.  If the nursery isn’t vacated, there is no room for the piglets.  All the while, new piglets are being born with nowhere to go.  Thus, the closure of packing plants leaves farmers with no good options. 

It is possible to hold onto the finished pigs for a bit longer and change diets or barn temperature to slow down growth, but this is costly and doesn’t stop the flow of new pigs into the system.  Producers could put more hogs in the barn, but this could create animal welfare problems and expose animals to disease.  This is also a reason hogs aren’t moved outside (such a move would expose animals to weather, diseases, and parasites), in addition to the fact that most hog producers do not have the pens and equipment to comfortably house hundreds of hogs in this way.  Keep in mind, there are 77.6 million pigs in this country. Iowa alone has 23.6 million pigs, or about 7.6 pigs for every man, woman, and child in that state.

Here is where the scale of the problem really kicks in. We have a national pork processing capacity of about 500,000 head per day. Latest data suggests that because of plant closures and slowdowns, we are processing about 40% fewer pigs, which means an extra 500,000*0.4 = 200,000 pigs that are left on the farm. Every. Single. Day. Do that for 5 days, and that’s 1 million “excess” pigs left on the farm.

Why not send the the hogs to smaller local packers? Well, assuming those packers even had room, how big are they? Some of the small-ish packers of any scale process 200 hogs a day. But, the largest plants now shut down can process 20,000 hogs a day. That means, 1 of those small plants would have to run 20,000/200 = 100 extra days to make up for just 1 day of lost production from the large plant. Or, stated differently, we’d need 100 brand new small packing plants to make up for the loss of one large plant.

The Road from Farm to Table

That’s the title of a new resource I helped pull together for the Purdue College of Agriculture.

I answered questions like:

• If there’s a surplus at the farm, why is there a shortage in the grocery store?

• Why would farmers throw away food?

• Why are meat packing plants shutting down?

• What are the impacts of packing plant shutdowns for farmers and consumers?

• Are we going to run out of food?

• How much of our food comes from abroad?

My colleague, Candace Croney, in the vet school also answered some important question about farm animals in light of recent packing plant closures:

• Why euthanize the animals instead of just keeping them on farms?

• Why not wait to see if things improve instead of euthanizing now?

• How will the animals be euthanized?

You can read the whole thing here.

My colleagues in agricultural communications pulled together a cool graphic to illustrate some of the challenges we are currently seeing in the food supply chain.

With some meatpacking plants temporarily shutting down due to #COVID19, how will it affect our food supply?@JaysonLusk, department head of @PurdueAgEcon, and Candace Croney, director of @pucvm's Center for Animal Welfare Science, discuss the impacts. https://t.co/TvH38uRuP9 pic.twitter.com/cZcJId9LZs

— Purdue Agriculture (@PurdueAg) April 28, 2020

More Meat Market Madness

Plant closures and slow-downs from COVID-19 have reached such levels that it will be impossible for consumers not to notice effects on meat prices or availability in the coming weeks. If the full page ad in the New York Times wasn’t enough to convince you, below is some updated data on animal processing numbers and wholesale beef and pork prices.

Estimated daily hog and cattle slaughter are both down about 40% compared to this time last year.

Less meat being produced means less meat available for grocery stores to buy. As a result grocery stores and consumers are bidding up the price of the available supplies. Wholesale beef prices have skyrocketed, and have reached a level (at least in nominal terms) we haven’t seen in at least a decade. Wholesale pork prices have also increased significantly from the dip a few weeks ago, but as of today, they remain below where they were in 2019.

Unprecedented volatility in meat markets

The words "unprecedented” and “uncertain” are being thrown around a lot these days, and it is precisely because the words have never been more true. I’ve been positing on happenings in the meat and livestock markets in the wake of COVID-19, and thought it might be useful to try to illustrate just how unusually volatile these markets have been.

Consider the weekly changes in wholesale met prices (all data are from the USDA compiled by the Livestock Marketing Information Center). Below are weekly changes in pork prices over the past decade. For the week ending April 4, 2020, wholesale pork prices were down $16.32/cwt (or $1.63 per pound). This is the largest change in wholesale pork prices since at least the year 2000 (I haven’t looked at data prior to that). However, just two weeks prior (the week ending March 20, 2020) wholesale pork prices were up $7.58/cwt. This was the largest weekly increase in the past decade. So, within a three week time period, we’ve witnessed the 3rd largest weekly price increase and THE largest weekly price decrease in at least a decade.

We see a similar outcome for beef. For the week ending March 20th, 2020, we witnessed the largest weekly increase in the wholesale price of beef (an increase of $35.88/cwt) we’ve seen in at least a decade. And just two weeks later, the price fell $16.58/cwt, the largest weekly price decline in at least a decade. Prices fell again $13.10/cwt the following week, for the 3rd largest weekly price decline in a decade. Within a three week time period, we’ve witnessed THE largest weekly price weekly increase and THE largest weekly price decrease in at least a decade.

I’d call that volatile!

All meat isn't created equal

There has been a lot of recent discussion about the impact of COVID-19 on food prices and availability. The recent closure of several meat packing plants has focused attention on meat prices in particular. There is a tendency to lump all cuts together as “pork” or “beef,” but as we’ll soon see, price impacts can differ significantly depending on which types of pork or beef we’re talking about.

First, let me state the obvious. Animals come in fixed proportions. A cow has 4 legs, 2 ears, and 1 tail. Likewise, meat from a cow comes from seven primary anatomical regions (these are the beef “primals”). One of the primals is the chuck, which comes from the front, shoulder area. About half the chuck typically goes to producing ground beef, and the other part primarily goes to roasts. It is possible to cut “steaks” out of the chuck, but they tend to be lower quality. By contrast, the rib and loin primals (along the back of the animal) contain the high dollar steaks (ribeyes, strip steaks, tenderloin). It is possible, of course, to turn a tenderloin into ground beef, but typically one would be crazy to do it because steaks from a tenderloin sell at double, triple, or quadruple the price of ground beef.

Ok, now what happened to the wholesale prices of primals in the wake of COVID stay-at-home measures? The figure below shows changes in prices of four beef primals relative to the their prices at the beginning of March.

Apparently, all beef isn’t created equal. The prices of round and chuck have increased more than 40% since the beginning of March. These are the primals that tend to be lower priced and are more frequently used to create roasts and ground beef. As it turns out, these are also the beef cuts consumers can afford and are more easily able to utilize at home, and the cuts seem to have benefited from the shift in meat buying from restaurants to groceries. By contrast, loin prices fell about 9% before rebounding a bit. We apparently eat more steaks when we have the money and ability to eat away from home. The price of the “short plate” fell about 30% before rebounding to “only” a 17% decline. This primal includes cuts like the skirt steak that are frequently used to make fajitas and part of the brisket; cuts heavily used in Mexican and BBQ restaurants.

We can see a similar story for pork. All pork isn’t created equal. There are six pork primals. The figure below shows price changes for four of the primals since early March. The prices of bellies and hams fell more than 50% before recovering somewhat. Bellies, of course, are the source of bacon. Apparently, bacon is eaten much more away from home than at home. The trends for ham and butt (inaccurately named because the pork butt actually comes from the shoulder) are a bit harder to explain, but interestingly, pork loin prices increased and remained fairly steady, now selling about 50% higher than at the beginning of March.

Why did prices of pork loins respond so differently than beef loins? It may be the price point. On April 17, 2020 the wholesale price of pork loin was about $0.92/lb, whereas the wholesale price of beef loin was about $2.62/lb.