Shocks to the beef industry were all part of 2020’s “unprecedented” theme, but how the market responded was less surprising.
Dustin Aherin, the animal- protein vice-president and analyst for Rabo AgriFinance, a RaboBank subsidiary, addressed those ideas at the virtual Certified Angus Beef 2020 Feeding Quality Forum.
Cattle, labor, physical capital and technology comprise the beef-production equation, he said, according to a CAB news release. When any of those fall out of balance, it’s communicated through prices.
The 2019 Tyson packing-plant fire and COVID-19 both threw the equation off, but with different effects. Where the Holcomb, Kansas, fire caused some destruction at one plant, the coronavirus pandemic brought changes in human health, plant adaptions and new technology across the entire supply chain.
“Looking at what happened here in 2020 with an extreme increase in fed-cattle supplies and given the backlog the collapse in prices really wasn’t unexpected,” Aherin said.
The escalating disasters highlighted the tightening capacity at packing plants, especially in the past five years. When there aren’t enough resources to turn cattle into beef it’s difficult to put a good value on those animals. That’s what happened, but why requires a deeper understanding of the financial environment, he said.
The pandemic created a “risk-off environment,” Aherin said. That caused investors to pull cash out of the market and put it into assets perceived as safer.
“In such a high-risk environment it’s really difficult to motivate buying in the live-cattle- futures side of the market,” he said.
Studies show small changes in beef tonnage result in large price changes, he said. The temporary plant shutdowns, labor challenges and the rapid shift from food service to retail caused major changes in beef availability. As painful as it was for cattle producers, the prices and magnitude of changes were in line with research models.
Agriculture often deals with heavy blows. The global financial crisis of 2008 took seven quarters for food-service recovery. A COVID-19 vaccine may help tame the pandemic next year. If it does, Aherin expects closer to eight to 10 quarters for recovery, he said. And the trend of change will continue in food service.
“We need to be proactive and willing to adapt,” he said. “Consumer preferences, supply-chain practices, food safety, quality and convenience are going to be even more important than ever.”
Opportunities are wide open for the beef industry, but it’s going to take buy-in and support from cattle producers to create a resilient, diverse and flexible supply chain, he said.
“The big talk is to have more robotic fabrication and cutting,” he said. “But there’s more near-term potential in data collection and monitoring.”
Improvements in those areas across all production sectors will help identify the best genetics and practices, he said. Traceability is another benefit. Disease outbreaks not only threaten people but — as African swine fever has illustrated — also pose risks to livestock and the food supply.
“We have to be able to track, trace and control any sort of disease outbreak before it becomes a major inhibitor to the marketplace,” Aherin said.
Aherin foresees a future where a product doesn’t have access to food companies, distributors, restaurants and retailers if they don’t meet the standards that those businesses have set for their supply chains.
“We have to be really focused on the consumer, and ready to innovate and be creative,” he said.