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Tyson to rebuild; fire rattles cattle markets
By Rita Jane Gabbett on 8/12/2019
Tyson Foods announced Monday it would rebuild its beef plant near Holcomb, Kansas partly destroyed by fire on Friday night and will pay employees in the interim. Meanwhile, destruction of one of the largest beef plants in the country is disrupting U.S. cattle markets, at least temporarily.
Cattle markets in turmoil
The fire temporarily knocks out of commission a major beef processing plant, which employs 3,800 workers and, according to various analysts, has the capacity to process 5,600 to 6,000 head of cattle per day.
Stephens Inc. analyst Ben Bienvenu estimated this plant accounts for 15% to 25% of Tyson’s beef processing capacity.
Sterling Marketing founder John Nalivka told Meatingplace he calculates the plant processed about 5% of total U.S. fed cattle.
Live cattle futures prices fell the daily limit on Monday morning, as one less processing plant means less demand for cattle in the immediate term.
“We would expect industry processing margins to expand on the news given a reduction in demand for cattle…. and a reduction in beef output,” Bienvenu wrote in a note to investors. “That said, the magnitude depends on the amount of time that the plant is closed. We expect Tyson to face negative headwinds from the fire given the size of the plant. Higher margins at Tyson’s other plants should help to offset the negative impact.”
Nalivka agrees that packer margins could improve if demand holds steady and cattle costs decline, but notes that impact might only be in play for a month or so, as the cattle typically slaughtered by this plant find their way to other plants.
With the short-term impact being less beef available to the market, analysts in the Daily Livestock Report (DLR) published by Steiner Consulting Group predicted higher beef prices would be necessary to ration demand or cause other packers to run extra shifts.
“Supplies in the spot market will likely be very tight, which normally results in a bidding war from those that are short,” the DLR analysts wrote.
“We’re taking steps to move production to alternative sites,” Steve Stouffer, group president of Tyson Fresh Meats, said in a news release. “Tyson Foods has built in some redundancy to handle situations like these and we will use other plants within our network to help keep our supply chain full.”
Nalivka said there is enough capacity in existing beef slaughter plants to absorb those typically slaughtered at the Holcomb plant. By his calculations, U.S. beef packing plants are collectively running at 91% of capacity. Absorbing the Holcomb plant cattle would push those plants up to 96% capacity.
“We can do it. We’ve done it before,” said Nalivka, noting the industry is set to harvest about 26 million steers and heifers this year, compared to the 29 million head that were harvested in 2000.
He added, however, that the market might at least initially see some heavier weight cattle come to market as they are delayed getting to another plant.
In terms of demand, analysts noted the timing of the fire coincides with the approach of Labor Day, a time when grilling for holiday gatherings typically boost beef demand.
Tyson plans to rebuild, pay employees
“Officials are still assessing the damage, so it’s too early to establish a timeline, but work to clear damage has already begun,” the Tyson Foods news release stated.
“This is a difficult time for our team members and their families, and we want to ensure they’re taken care of,” said Stouffer. “Today, we will notify our full-time, active team members that they’ll be paid weekly until production resumes.”