Recovery Continues for Meat Packers, Big Challenges Remain

KANSAS CITY, MO – Capacity utilization at meatpacking plants increased slightly since early May but remained constrained by modified operations according to a new report from the Kansas City Federal Reserve. After declining sharply alongside closures, capacity utilization at U.S. beef and pork plants expanded as facilities reopened. Despite fewer plant closures, modified operations related to social distancing and other precautionary measures have continued to constrain overall production capacity. Through the end of May, beef and pork plants were utilizing about 85 percent of pre-pandemic capacity. Alongside reduced operational capacity at packing plants, meat production continued to lag 2019 levels as packing plants reopened, the daily slaughter of cattle, and hogs increased from lows reached in early May. However, both beef and pork production remained about 20 percent lower than a year ago through mid-May and it appears that modified operations and revised processes related to COVID-19 have continued to inhibit production, even as plants have resumed operations.

Compounding the challenges facing U.S. meat supply chains related to COVID-19 outbreaks at packing plants, consumers rapidly shifted purchases of food from foodservice to retail outlets in March. Foot traffic at supermarkets was roughly double that of restaurants in March and April and remained about 50 percent higher through May. At the same time in 2019, supermarkets and restaurants had equal amounts of foot traffic. The combination of challenges caused wholesale meat prices to increase substantially and also put upward pressure on retail meat prices. At the end of May, prices for boxed beef cutouts and pork carcass cutouts remained about 180 percent and 125 percent higher than the beginning of the year, respectively.
(SOURCE: Federal Reserve Bank of Kansas City)