DENVER, CO – After beef packing plant capacity fell to historic lows in late April, beef production and prices today have returned to pre-pandemic levels.
According to a new CoBank Report, beef cutout started March just above $200 per hundredweight. As plant capacity shrank and shortage fears set in, however, the cutout climbed to a record $475 in mid-May, driving beef packing margins to historic highs along with it.
The limited packing capacity in U.S. beef has put increased pressure on cash cattle feeding margins, creating losses for those feeders who didn’t hedge before the volatility and price shocks of recent months.
Today, beef plants are now back online and industry plant capacity has been operating around 95 percent of pre-COVID levels. The concern is now shifting from supply to demand.
Foodservice traffic improved as most U.S. states started easing “stay home” orders but many social distancing restrictions remain. This means ongoing challenges for the dine-in, full-service sector, which especially hurts the beef complex.
With tens of millions of Americans losing jobs during COVID-19 and government payments appearing to decline in the coming months, beef prices will likely be further tested this summer.
Though beef production fell more than 10 percent in the second quarter, CoBank expects modest supply growth in 2020. Fed cattle weights have hovered around 6 percent above prior-year levels in May and June and will likely continue well above normal through the summer.
CIf estimates are realized, domestic beef production will grow 1 percent this year – roughly half of the pre-COVID-19 estimate.
(SOURCE: CoBank Knowledge Exchange)