Effects of August Fire Affecting Domestic Cattle Markets

(WASHINGTON, DC) Back in August, a fire broke out at one of the largest beef packing plants in the United States and significantly impacted beef markets in the days and weeks that followed. According to the American Farm Bureau Federation (AFBF), the fire at a Tyson Fresh Meats plant in Southwest Kansas stressed an already sensitive balance between processing capacity and a growing fed cattle supply. Immediately after the fire, the cattle were sent to other facilities in an industry already facing a relatively strained capacity. According to CattleFax, the facility had a daily capacity of 6,000 head and accounted for about six percent of U.S. slaughter capacity. Prior to the fire, Tyson held the nation’s largest market share of beef processing capacity at 29 percent, followed by JBS (23 percent), Cargill (22 percent) and National (12 percent). After the fire, both the beef and cattle markets saw significant price movements, leading to historic gross margins for those involved in the beef packing industry. Much of this movement is right in line with what one would expect under these conditions, with the prices being driven by shifts in the demand curve for fed cattle and the supply curve for wholesale beef. However, a key assumption in these predictions is that actual slaughter numbers will fall relatively in line with the closed plant. Instead, small decreases were observed during the following week, along with a small increase the second week after the fire as beef packers expanded weekend shifts to capture the additional margin being offered by the market.