KANSAS CITY — The start of the new decade held much promise for the US meat and poultry industry, with prospects of even bigger exports to China of beef, pork and chicken. This was after a huge surge in pork shipments late last year. The United States and China on Jan. 15 had signed a phase one economic and trade agreement, which began to be implemented this past month.
January however, also brought news that a new coronavirus (COVID-19) had emerged in central China. The rest of the world watched with increasing alarm as it then made its way to every continent except Antarctica. By the start of March, it had upended normal life in most countries around the world, especially in Europe. By the second week of the month, millions of Americans were being ordered to stay home.
The thousands of deaths globally are the tragic face of the pandemic. But the economic impact has also been far-reaching. The global and US economies are now almost certain to slide into recession and this could have a significant impact on meat demand at home and abroad.
The virus has pummeled the global equities and commodity markets. The damage has been staggering. The Dow Jones Industrial Average on March 12 and March 16 declined by its largest one-day percentage decline since Oct. 19, 1987. It closed at 20,188 on March 16, versus its all-time high of 29,398 on Feb 14. That meant it fell 31% in a month.
The first damage to the meat and poultry industry came in the livestock futures markets. All live cattle futures markets plunged by 20% to 23% from Feb. 21 to March 16. These were the biggest percentage declines since President Richard Nixon’s freeze on beef prices in 1973-74. Similar damage was wrought on feeder cattle futures.
The futures’ collapse caused a 10% collapse in cash live cattle prices. They went from an average $119.71 per cwt live the week ended Feb. 23 to $108.84 per cwt live the second week of March, down 14.4% on the same week last year. Analysts in early January had expected prices to average $116 to $117 per cwt live in 2020. Now they might average closer to $105 to $110.
The next damage began to show up in the HRI (hotel, restaurant and institutional) sector in lost meat and poultry sales, as restaurants closed, cruise ships canceled sailings and the federal government urged people not to travel. Food away from home accounts for 54% of total food expenditures and food at home 46%, according to the US Department of Agriculture (USDA).
As the crisis unfolded, the foodservice segment suffered one of the first blows. Dozens of industry events have been canceled, closing eateries while casual dining concepts rely on curbside service to survive and fast-food chains have resorted to drive-through business only.
On the flip side, retail food sales have already increased significantly, especially of meat and poultry. Numerous grocery stores in early March reported near-empty meat cases. Such were beef sales in the week ended March 15 that retailers scrambled the following Monday and Tuesday to refill their cases. The result was that the boxed beef cutouts staged their biggest one- and two-day increases since mandatory price reporting began in 1996. Contrary to some reports, consumers are increasing their beef purchases, not reducing them.
Some analysts expressed concerns that meat and poultry supplies might be disrupted if processing plants had to close due to labor or other issues. Tyson Foods on March 13 warned investors that the pandemic could disrupt its operations. Its stock price fell more than 30% in the first two weeks of March and the stock of other publicly traded meat companies also fell heavily.
For its part, the USDA sought in early March to reassure meat producers it will keep processing plants staffed with federal inspectors. The department would use its authority and all administrative means and flexibilities to address staffing considerations during the outbreak, it told the National Cattlemen’s Beef Association (NCBA). Earlier, the NCBA said it was communicating daily with every sector of the beef supply chain.
The federal government was also working with top leaders in the food processing and retail sectors to ensure that supply chains continue to function. There are no apparent food shortages and retail food outlets will remain open during efforts to flatten the curve of coronavirus infection, President Donald Trump said March 15. The immediate questions now are: How long will the coronavirus crisis last and how much will markets recover when it is declared over if a recession looms?