Packing Plant Fire Catalyst for Expected Market Pressure

(FORT COLLINS, CO) A fire in Tyson’s Finney County, Kansas beef processing facility on August 9th has the opportunity to affect the livestock markets in a substantial way. Dr. Stephen Koontz, Colorado State University Extension Livestock Economist explains the facility is west Garden City and is a major fed cattle slaughter and boxed beef fabrication plant. The plant slaughters approximately 6,000 head per day and between 27,000 and 30,000 head per week, or roughly five percent of the national fed cattle slaughter. The impact of this event on fed cattle markets will be substantial. The market is in the middle of the third quarter: supplies are heaviest, slaughter weights are ramping up, and competing meat supplies will begin their fall increase. This is also the quarter with the highest volume of beef supplies and forecasts are for sustained supplies into the fourth quarter. Disruption in the southern plains will spillover nationally. The countering pressures are that packer returns are excellent: farm-to-wholesale margins are very strong so this disruption will maintain incentives for a packer to run as many hours as possible. Prices for fed cattle have been reasonable through the summer and feeding costs have been declining. Also, margins for retailers have been very strong and some of the strongest in recent years. There are clear economic factors countering market disruptions, but cattle markets will likely see continued volatility through the fall and possibly the remainder of the year. The live and feeder markets will be into new territory – new lows – and charts of the open contracts will be of little use. Koontz explains that we will have to look at weekly charts for price levels where the market will likely stop. In short, aggressive downside price protection for cattle producers will be very much needed the rest of the year.