As Processing Facilities Struggle with Labor, Spread Between the Wholesale Price of Meat and Livestock Prices Widens

The self-distancing and quarantine protocols put in place to slow the spread of COVID-19 have reduced economic growth, shuttered consumers in their homes and changed the way Americans purchase and consume food.
Food production, too, has been significantly disrupted, especially at livestock processing facilities, where labor shortages and worker protection measures are slowing throughput at plants around the country and even causing some facilities to shut down. In late April President Trump signed an executive order designating these companies as critical infrastructure and instructing them to remain open when possible, abiding by CDC guidelines to protect workers.
At the same time considerably fewer cattle and hogs are being processed, wholesale meat prices are rising and the gap between the value of meat products and the prices that producers receive for their livestock is growing. That widening gap caught the attention of President Trump, who recently voiced his concerns about the situation. President Trump asked the Department of Justice to investigate whether or not meat processing companies participated in price fixing after attorneys general from 11 states issued a letter urging that action.
Strained Processing Capacity
Over the past two months, more than two dozen livestock processing plants have closed down due to issues with COVID-19, for periods ranging from a few days to two weeks or even indefinitely. In some cases, the closures were due to outbreaks among workers at the plants. In other cases, it is a struggle to keep workers, who are afraid of getting sick, coming into the plant. Some of these facilities, such as the JBS facility in Greeley, Colorado, have already reopened. That makes estimating the country’s processing capacity a moving target, but we can estimate that at times over the previous few weeks, pork processing capacity has been reduced by as much as 20% and beef processing capacity has been reduced by as much as 10%.
These estimates are derived from publicly available information and company announcements about packing plants and further processing facility closures. They do not factor in reductions in capacity due to slowing throughput and reduced line speeds at these facilities, which are also reducing capacity. In an effort to protect employees, processing companies are implementing new policies (such as installing plexiglass barriers between workers, spacing employees further apart, etc.) and incorporating more social distancing in their facilities, which slow the flow of product through their lines. This reduction is more difficult to quantify but has the potential to have more far-reaching impacts than direct plant closures. One data point that we can use as a proxy for this difficult-to-gauge number is overall weekly slaughter of cattle and hogs. Figure 1 shows the drastic drop in slaughter numbers for hogs and cattle. Weekly total cattle slaughter has decreased by 38% since its March high and 34% from the previous year. Weekly hog slaughter has dropped 45% from its earlier high and 35% from 2019...MORE