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Bottlenecks in the supply chain will have lasting effects on producers
If COVID-19 has taught us anything, it’s that this pandemic has created multifaceted disruptions in the supply chain that few could have predicted. Hardest hit are the pork, beef, and chicken producers dealing with an unprecedented backlog of animals because of closures and slowdowns at meatpacking plants.
“As I walk through our barns, my family is faced with the reality of having to euthanize market-weight pigs that would normally go into the food chain,” says Michael Boerboom, whose family has been farming in the Marshall, Minnesota, area for five generations. “At the same time, not even 10 miles away our local grocery store is out of pork. It’s frustrating.”
New estimates by the United Food and Commercial Workers (UFCW) International Union show at least 30 meatpacking plants have closed at some point in the past two months. These closures have resulted in a 40% reduction in pork slaughter capacity as well as a 25% reduction in beef slaughter capacity.
“America’s meatpacking workers are putting their lives on the line every day to make sure our families have the food they need during this pandemic,” says Marc Perrone, UFCW International President. “Meatpacking plants did not close because anyone wants them to close. These plants closed because at least 30 workers died, and more than 10,000 workers have been infected or exposed to COVID-19.”
What that means for the Boerbooms, who produce about 325,000 pigs annually, is a backlog of about 9,000 hogs. Because hog producers have a tight timeline to maintain productivity and safety, Boerboom says pigs can’t be held like cattle. While they’ve taken actions to adapt their business to the market reality, the changes won’t be felt overnight and won’t alter the fate of the hogs that should be headed to market.
“We’re not a factory. We can’t just shut things down, come back in six weeks, and pick back up again. Our sows continue to farrow. Our pigs continue to be weaned,” Boerboom says. “But our market-ready pigs are also getting larger. It won’t be long before these animals hit a point where they’re too large for the supply chain.”
Nationwide, Boerboom says the backlog across the U.S. is estimated to be 2 million hogs. “When you look at per capita consumption, that’s enough to feed 8 million Americans for one year. If we don’t get these plants back to 100% very quickly, those 2 million head may need to be euthanized. The size of this crisis is unprecedented and unbearable.”
In addition, holding market-ready hogs means there are fewer places to raise piglets, which also affects the future supply.
While two of the packers the Boerbooms work with have indicated they would accept pigs at a heavier weight, Boerboom says there is still a physical and engineering limit for what weight pigs can be processed. For the last few years, the average live weight of pigs has been 285 pounds. “I think we could see that shoot well over 300 pounds,” he says.
And more pig, says Will Sawyer, doesn’t necessarily mean more pork. “It’s not a one-to-one ratio,” says the lead animal protein economist in CoBank’s Knowledge Exchange research division. “Once an animal gets to a certain weight or beyond a certain weight, it’s not gaining a lot of meat quality.”
Even though it may not be ideal, Temple Grandin, a longtime advocate for the humane treatment of livestock for slaughter and the author of more than 60 scientific papers on animal behavior, says plants can adjust. “It would mean slowing the process way down, but animals could be hung on every other hook to avoid putting too much weight on the rails.”
Should a producer have to make the call and euthanize animals, Grandin says it must be done as humanely as possible.
“There are some horrid methods being talked about, and the fact that they’re even being talked about concerns me,” she says. “What I recommend is taking animals to a plant so they can be put down. JBS has been doing this with some pigs, and it only takes 10 to 15 people to do it. They can even practice social distancing because normally you're more than 10 feet apart.”
If that’s not an option, Grandin says pigs should be shot with a captive bolt or electrocuted.
CoBank estimates that in the second quarter alone, 6 to 7 million pigs may have to be euthanized. “By our math, that could total $700 to $750 million of lost market value,” Sawyer says.
As if that weren’t bad enough, producers are also facing plummeting prices.
“The buying stations are being locked at night, so nobody drops pigs off,” Boerboom says. “I think that speaks to the value of a pig right now.”
While he says they were fortunate enough to sell some pigs last week for $41 each, the Boerbooms still lost about $100 per head. Through the rest of 2020 hog producers could lose $5 billion, according to the National Pork Producers Council.
Bad News for Beef
Involved in the beef industry for 13 years, Shane and Shawn Tiffany operate a custom finish feedlot in central Kansas. They also grow primarily corn and wheat, which is used as feedstuffs for the feedlot.
The brothers finish close to 70,000 head each year – the vast majority of which are customer owned by about 400 producers across the country. The animals remain in the feedlots until they reach market weights of 950 to 1,250 pounds.
“This time of year, we normally ship around 1,600 to 2,000 head a week,” Shane says. “We have only been able to move about 400 a week, but we feel fortunate to have that many going through the pipeline.”
While the Tiffanys can use different feeding strategies to maintain an animal’s weight or slow gains, the market-ready animals still have to be fed. . . an extra cost many producers may not be prepared for. Even though some of their cattle are moving, Tiffany says they are still losing $250 per head, and he predicts that loss is only going to increase.
“There’s been a major disconnect between the Chicago Mercantile Exchange (CME) price discovery tool and what the actual markets are doing, which makes it really difficult to manage risk especially in the midst of these plant disruptions,” Tiffany says, adding that the backlog of fat cattle in the system is approaching a million head.
Nationwide, the beef cattle industry is projected to lose nearly $14 billion this year due to COVID-19.
“The situation is presenting some incredible challenges industry-wide for producers,” Tiffany says. “I’m afraid there are going to be a lot of multigeneration operations lost.”
Paring Back Poultry
In Farmerville, Louisiana, Butch Sensely operates a 21-house broiler operation that produces about 2.5 million birds annually for Foster Farms.
Farming for more than 30 years, he rotates his flocks every 6½ weeks. But when COVID-19 began affecting Foster Farms plants, Sensley was forced to euthanize some of his birds, ultimately throwing his schedule off.
“We try to produce six flocks a year,” he says. “Because the plant can’t receive our product, it automatically kicks our operation back to four flocks a year, and it will greatly impact our income.”
For Sensley, that’s roughly a reduction of more than 800,000 birds.
And when birds back up, Sensley says he can’t simply contract with another packer. “Poultry is like peach farming. When that product is ready, it has to be harvested. Once birds get past their weight goal, the house becomes overpopulated, and there’s no time to find another company to take them.”
In 2019, 251 Louisiana producers raised more than 1 billion pounds of broiler meat with a gross farm value of nearly $924 million, according to AgCenter. “Foster Farms has said that if it doesn’t increase its workers by 200 in the next three weeks, it is considering moving out of the state,” Sensley says. “If that happens, it would be devastating to our industry.”
Big is not bad. Big is fragile.
Through the years, the meatpacking industry has seen rapid consolidation, as leading companies built large plants and many independent packers disappeared. Today, four companies handle 74% of all beef; while five companies handle 64% of all pork, according to the North American Meat Institute.
“The paradox you have here is that while a concentration in the industry is very cost effective, it also causes major problems when we start losing multiple plants. Big is not bad. Big is fragile,” Grandin says. “If we want a robust supply chain that can withstand some disruption, we have to have a more distributed supply chain.”
Before the coronavirus, the USDA projected meat consumption would be at 227.4 pounds per person in 2020. As meatpacking plants struggle to get back up to full capacity, it now forecasts that number will fall to 217.1 pounds per person. It was 224.3 pounds in 2019.
Since four processing companies carry so much weight in the cattle market, they can also drive prices down for ranchers and feedlots. Higher up on the value chain, the lack of competition at the grocery store can push prices up for consumers.
“There is a disparity that exists in the beef industry right now,” Tiffany says. “Between what we’re getting paid and what the consumer pays, there is anywhere from a $1,000 to $2,000 margin that someone is taking advantage of. At this point, even with the disruptions, packers are still very profitable. It’s unfortunate that reality exists when producers are literally on the verge of bankruptcy.”
Boerboom says it is a losing situation for everyone. “Producers can’t market their pigs. Packing companies can’t run. And the consumer is likely going to be paying the most he’s paid for protein in years.”
With 14 meatpacking plants scheduled to reopen this week, Perrone says it’s a reckless move that will put American lives at risk and further endanger the long-term security of our nation’s food supply.
“We are calling on the White House to end the delays and immediately mandate all meatpacking companies provide the highest level of protective equipment, ensure daily testing is available for all meatpacking workers, enforce physical distancing at all plants, provide full paid sick leave for any workers who are infected, and establish constant monitoring by federal inspectors to ensure these safety standards are enforced,” he says. “We cannot wait any longer.”
Meat isn’t the only industry faced with a tight supply chain.
“The pharmaceutical industry is worse than the meat industry in terms of having a narrow supply chain with no backups,” Grandin says. “The chemicals are made in China. The pills are fabricated in India. There are very few suppliers. If that goes down, how do we get antibiotics?”
While Boerboom says he appreciates what has been done by the government through initiatives like the Coronavirus Food Assistance Program (CFAP), it simply isn’t enough.
CFAP, which was crafted using funding in the CARES Act, includes two components: direct payments to farmers and ranchers totaling $16 billion, and $3 billion in food product purchases for distribution. Of the $16 billion, reportedly $9.6 billion will be directed toward the livestock industry (e.g., dairy, cattle, hogs). The USDA did note this amount is merely an estimate of what may be needed. If one area needs less than allocated, the organization says it may be able to shift that money to ensure funds get to where they are needed.
“However, payments are capped at $125,000 per commodity per producer,” Boerboom says. “We’re backed up on marketing about 9,000 head. The normal value of those pigs is $1.26 million. We’re trying to put a Band-Aid on a knife wound. It’s just not going to cut it.”
And the impact of the shortfall goes beyond his five family members who are involved in the operation.
“We estimate our operation directly supports over 100 families including employees who have worked for us for 25 years, and contract growers who have been with us for 30 years,” Boerboom says. “Right now all of that is in jeopardy, and we’re just one operation.”
It is replicated from county to county, from town to town, across rural America. “The payment cap needs to be raised or else this crisis, long-term, is only going to get worse,” he says.
Tiffany echoes Boerboom’s concerns. “With the safety measures that have been put into place at the plants, we’ll never be able to harvest as many cattle on a daily basis as we did before COVID-19. Our efficiency is being drastically reduced,” he says, adding that, to date, no details have been shared on how and when producers will get those payments. “This is a real-time issue. Producers require some financial help right now, not months from now. We also need to be included in further stimulus packages.”
Poultry producers are not included in CFAP because the government believes poultry companies can withstand the economic difficulties posed by the pandemic. “The farmers in my area can’t understand why we’re not included,” Sensley says.
“The American public is counting on us to provide a safe, wholesome product,” Tiffany says. “We take a lot of pride in putting food on someone’s plate. To see this crisis is heartbreaking. There will be long-term ramifications.”