Packers seem to have hit the jackpot with the Tyson plant fire in Kansas, with profit margins closing in on $500 dollars per head. Meanwhile, cattle feeding losses declined from 27 dollars per head to a 55 dollar per head loss.

The concerns from ranchers and feeders alike over what’s going on in the industry has grabbed the attention of Ag Secretary Sonny Perdue. In a statement on Wednesday Perdue said, “As part of our continued efforts to monitor the impact of the fire at the beef processing facility in Holcomb, Kan., I have directed USDA’s Packers and Stockyards Division to launch an investigation into recent beef pricing margins to determine if there is any evidence of price manipulation, collusion, restrictions of competition or other unfair practices. If any unfair practices are detected, we will take quick enforcement action. USDA remains in close communication with plant management and other stakeholders to understand the fire’s impact to industry.

I have spent this summer visiting with cattle ranchers across the country, and I know this is a difficult time for the industry as a whole. USDA is committed to ensuring support is available to ranchers who work hard to the feed the United States and the world.”

The National Cattlemen’s Beef Association President Jennifer Houston responded saying, “Today’s announcement by Secretary of Agriculture Sonny Perdue demonstrates the government’s understanding of the extreme strain placed on the cattle industry by the plant fire in Holcomb, Kansas.

“We encourage USDA to look at all aspects of the beef supply chain and to utilize internal and external expertise in this investigation. We believe it adds transparency that will help build confidence in the markets among cattlemen and women.”

DTN Analyst Rick Kment said cash cattle trade fell $5 to $10 per cwt in the week following the fire. October live-cattle futures fell $8.50 per cwt in that time.

“The premise behind this is that without the Tyson plant up and running — and it may take months to rebuild — beef supplies will be tighter and cattle prices will fall based on lower packing capacity,” he said.

The Tyson plant killed 5,600 head a week, or equal to about 6% of the nation’s beef-packing capacity. Boxed beef values surged on the idea that packers would not be able to deliver enough meat to the market, Kment said. Boxed beef values rose $22.32 per cwt in choice cuts.

“Ultimately from my calculations, packer gross margins increased over $200 per head during the week,” Kment said. “Packer gross margins were already strong before this event, which added increased scrutiny to the entire system. The moves on both sides are overly aggressive, and had been driven more by fear and uncertainty than market fundamentals. But the speed at which these changes developed created its own momentum over the last two weeks. This has created even more volatility in the market.”

Tyson announced on Aug. 12 that the plant would be closed indefinitely, but said its 3,800 employees would continue to be paid.

The plant is often referred to as the Garden City plant, which is nearby. About 1,200 workers had to be evacuated from the plant on the night of Aug. 9 when the fire broke out about 8:30 p.m. CDT. No injuries were reported from the fire.

 

Photo Credit: KULR8 News

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