USDA ties beef-cost spike to virus, ’19 fire

Agency checking for unfair practices

Market disruptions that have recently driven cattle pricing spreads to record levels are connected to two events: The coronavirus pandemic and a fire that temporarily closed a Tyson Foods beef processing plant last fall, according to the U.S. Department of Agriculture.

A study published Wednesday found that in the weeks and months after these events, the difference — or spread — between the prices for boxed beef and dressed fed cattle rose to 67 cents per pound after the Tyson fire and just over $2.79 per pound during the pandemic.

Between 2016 and 2018, data show the spread averaging closer to 20 cents per pound during the same weeks.

After an outcry from ranchers and producers about the Tyson plant’s alleged effects on the U.S. cattle market, the USDA opened an investigation to see if there was any connection, and if so, did the entities take advantage of the situation through price manipulation, collusion or other unfair practices.

The coronavirus pandemic was added to the investigation in April because of severe beef supply disruptions, including absenteeism

as workers tested positive for the virus.

After months of waiting, U.S. Secretary of Agriculture Sonny Perdue on Wednesday confirmed that the Tyson beef plant closure and the pandemic “clearly disrupted the markets and processing systems responsible for the production and sale of U.S. beef.”

In a statement, Perdue assured producers that the USDA is working to see if there are any violations of the Packers and Stockyards Act. “If any unfair practices are detected, we will take quick enforcement action,” he said.

Along with analysis of the economic disruptions and the high spread between boxed beef prices and fed cattle prices, the report included various policy recommendations such as additional risk management training resources for livestock producers and reducing costly, regulatory burdens that smaller meat processors face.

In response to the USDA’s investigation, Rep. Frank Lucas, ROkla., said the market strain over the past year has exposed many vulnerabilities within the beef supply chain and forced many ranchers to seriously question the future of their farm operations. In a statement, Lucas said he would be looking forward to the conclusion to see if any violations are found.

The North American Meat Institute, a nonprofit trade association representing meat and poultry companies, issued a statement that “no wrong-doing” was identified by USDA; the disruptions came from “two extreme and unforeseen events.”

Disruptions from the coronavirus pandemic peaked in the last week of April, when nearly 40% of the nation’s beef processing capacity was idled because of worker illnesses, according to the USDA’s report. From early April to the second week of May, the spread increased by 323% to $2.79 cents per pound. It has since narrowed to $1.19 in early June, but “it is too early to determine if [that] will continue.”

Tyson’s plant in Holcomb, Kan., which accounts for nearly 6% of the nation’s beef processing capacity, caught fire in early August last year and didn’t resume operations until December.

According to market reports from Derrell Peel, an economist with Oklahoma State University, this resulted in an immediate loss of fresh beef and shock to the wholesale meat markets. To compensate for the closure, he said buyers and sellers took on added costs to transport and reroute loads of cattle to other plants further away. Market effects from the plant’s closure softened about seven weeks after the fire, Peel said.

A spokesman for Tyson Foods declined to comment on the investigation and recommended talking with the North American Meat Institute.