Alarm bells started ringing through the US meat and livestock industry over the coronavirus (COVID-19) as early as last February. That’s when the virus’ rapid spread began to roil the global and US commodity markets. Export slowdowns meant that red meat and poultry products rapidly filled cold storage facilities throughout the United States.
The disease outbreak by early March was declared a global pandemic and continued to wreak havoc on equities and commodity markets. March 12 saw the largest one-day selloff in US stocks since 1987 and live cattle and hog futures prices continued to plunge, along with cash prices for these animals.
The worst was to come, as the virus began to infect workers at most meat and poultry processing plants. Many plants reduced production in early April to try and protect workers. JBS USA’s beef plant in Souderton, Pa., was the first of more than 10 plants to suspend all production temporarily.
Trepidation gripped the industry throughout April and beef and pork production levels declined to unprecedented lows relative to plant capacities because of worker illnesses and absenteeism. The last week of April saw weekly cattle slaughter total 439,000 head, 68% of available slaughter capacity. Weekly hog slaughter fell to 1.553 million head, also under 70% of capacity. The average price of live fed steers that week was 21% below the same week in 2019 and the average carcass price for live hogs was down 27%.
Down but not out
Remembering just how dire the challenges were is extremely important due to the miracle that occurred in May and June. The many ways the industry tackled these challenges and returned to normalcy in such a short time is one of the greatest stories in the industry’s long history. Production levels returned to normal levels by late June.
That production rebounded so quickly after May is because meat and poultry companies had already started spending millions of dollars to protect their workers. They have now spent well over $1.5 billion on numerous measures inside and outside plants. Meanwhile, they had to revamp production lines because widespread restaurant closures and restrictions transferred consumers’ food dollars from foodservice to retail establishments. This meant producing more cuts to retail specifications and fewer for foodservice. This will continue until widespread vaccination occurs, the pandemic recedes, and foodservice establishments resume normal activity.
Companies acted on numerous fronts to protect their workers and pay them special bonuses. Tyson Foods Inc., North America’s largest meat and poultry company, incurred direct incremental expenses associated with the impact of COVID-19 totaling $200 million and $540 million for its fourth quarter ended Oct. 2 and 12 months of fiscal year 2020, respectively. It expects such costs to decline to $330 million in fiscal 2021, the company said.
Meanwhile, Tyson sold far more beef to retail outlets in fiscal 2020 than in 2019, in large part because of the impact of the COVID-19 pandemic on foodservice establishments from March on. Tyson’s retail beef sales totaled $8.16 billion, up $735 million on 2019’s $7.42 billion. Its foodservice sales totaled $3.67 billion, down $482 million from 2019’s $4.15 billion. Beef sales were thus 2.2 times larger to retail than to foodservice, versus 1.78 times in 2019.
Meat and poultry processors still face challenges. Most beef companies cite labor shortages and worker protection as the No. 1 issue facing the industry. This was clear from companies’ responses to Cattle Buyer’s Weekly’s annual survey last November of the Top 30 US beef packers. The main issue facing the industry remains labor, noted Kazunobu Nomura, president and chief executive officer of Creekstone Farms Premium Beef. COVID-19 magnified the issue, but it was a major problem long before the virus came to the United States. Even with a high level of unemployment, packing plants are struggling to run at capacity, he said.
The top issues are the challenges created by COVID-19, including labor shortages and varying channels of demand for all products, said Henry Davis, president of Greater Omaha Packing Co. Brian Coelho, president of Central Valley Meat, also cited having to navigate fluctuating demand for products and labor issues related to COVID-19. Higher-than-normal turnover and absenteeism has made it difficult to operate plants at capacity, he said.
The broader challenge in the coming year is to ensure that a new surge in COVID-19 illnesses does not disrupt production levels and impact livestock supplies and red meat demand. Neither will the poultry sector be immune to this challenge. Therefore, COVID-19 will cloud this year’s outlook for the meat and poultry industry. But anxiety over renewed worker illnesses will be alleviated when all plant workers are vaccinated. The North American Meat Institute, National Cattlemen’s Beef Association and National Pork Producers Council in early December called for COVID-19 vaccine priority for meat and poultry workers after healthcare workers and those living and working in long-term care facilities.
Companies meanwhile continued to publicize what they were doing to protect workers. Tyson reiterated how it has transformed its facilities and implemented strategic testing to stay ahead of the virus. It has also expanded its health services staff and has created a chief medical officer position.
JBS USA in early December removed 202 at-risk workers, including those 60 years old or older, from its Greeley, Colo., beef plant, as part of a “vulnerable population” policy. The workers are still getting full pay and benefits. Across all JBS US facilities, the company has removed more than 5,000 people, roughly 8% of its workforce, with pay and benefits. To accommodate for staff reduction, JBS said it may simplify the mix of products in a plant.
Absent new COVID-19 cases, 2021 should be a positive year for the industry in supply and demand terms. Overall supplies of red meat and poultry should increase about 1% from 2020, according the US Department of Agriculture. Beef production will increase 2%, while pork and chicken production will be flat to slightly higher. Beef processors enjoyed a second year of record profits in 2020 and will have another strong year, albeit with lower operating margins. Pork profits will likely be as solid as last year and chicken margins, which were poor in 2020, should improve.
On the demand side, exports will remain an extremely bright spot for US pork after its record year in 2020. Beef exports should also rebound as key global markets rebound from COVID-19’s impact on countries’ economies and eating out restrictions ease. Forecasts are for a strong rebound in foodservice sales in many countries, including the United States. Meanwhile, Americans will continue their newfound love of cooking at home and buying expensive cuts of meat as an indulgent treat.