Agricultural News
K-State's Glynn Tonsor Breaks Down Cattle Market's Surprising Reaction to Tyson Packing Plant Fire
Wed, 21 Aug 2019 12:10:24 CDT
Without advance warning, cattle prices got slaughtered last week after the arrival of news that the beef packing plant in Holcomb, Kan. was being shut down due to a fire related mishap. Kansas State University Extension Ag Economist Dr. Glynn Tonsor says that while cattle prices tanked, higher wholesale boxed beef prices and profitability for producers have done just the opposite and climbed sharply. According to him, Choice cut-out jumped $22 for the week after the fire to $238.69 and Select cut-out rose just under $20 for the week to roughly $213 with Tuesday and Wednesday capping the largest daily changes ever recorded since 2000 when mandatory price reporting began. Tonsor explains the economics at play behind this surprising event.
"The way I've been describing this is when you have a major event like we had in Holcomb, the processing capacity in the industry was shrunk. The ability to handle cattle compared to the day before that event was reduced and that increased the cost of operating and processing cattle - so, what did that do?"
Tonsor continued to explain that in economic jargon, "that decreased the derived demand for fed cattle," which resulted in the pushback the markets saw in fed cattle prices and subsequently feeder cattle prices. Tonsor says that in itself was not exactly surprising - economically speaking - but what was surprising was the magnitude of the cut-out price increase. Reportedly, the cut-out was up about 9% for the week while cattle prices declined near 5%.
The good news in all of this, Tonsor explains, is that strong demand indicators actually manifested in the market after this event occurred. Tonsor hesitates to say this level of demand might in fact be strong enough to reverse the overall impact but suggests it could at least help to pull the industry out of the current situation. At present, though, no definite answers have been made clear as to what Tyson's intentions are for the plant's reopening. Anecdotally, Tyson has committed to reopening the plant, but Tonsor says that could take months rather than weeks. Even so, he remains optimistic that the plant will eventually be rebuilt.
Listen to Tonsor's entire break down of the cattle market's reaction to the recent Holcomb fire event, with Radio Oklahoma Ag Network Farm Director Ron Hays, on today's Beef Buzz.
The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Network and is a regular audio feature found on this website as well. Click on the LISTEN BAR below for today's show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.
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