Trump, Tyson, And Tough Times
DR. ANDREW P. GRIFFITH
KNOXVILLE, TENNESSEE
August was littered with announcements impacting cattle markets. Many of these announcements were unanticipated and influential in shaping the current happenings in cattle markets. Most of these announcements were received as bearish to the domestic cattle market, which resulted in cattle prices declining rapidly. Here is a list of most of those announcements. It would not be surprising if more announcements are made between the writing of this article and when it is published.
The first announcement came the afternoon of August 13th when Tyson announced the closure of the Joslin, Illinois slaughter facility, the desire to sell the Pasco, Washington slaughter facility, and the closure of a case ready facility in Eagle Mountain, Utah. This leaves Tyson putting its focus on the Dakota City, Nebraska; Holcomb, Kansas; and Amarillo, Texas facilities. Tyson eliminated a shift at the Amarillo facility earlier in the year, which means they have capacity to increase slaughter at that facility despite the closure of the Joslin plant. The timing of this announcement was tough for those marketing cattle during that time period, but all business decisions have to be made and announced at a single point in time.
Approximately one week later, President Trump announced intentions of importing 300,000 metric tons (661.4 million pounds) of lean beef trimmings that would allow existing trading partners to take advantage of lower, in-quota tariff rates. As background, many trading partners have an in-quota tariff rate that is increased when the quota for the year is filled and then the tariff rate is increased. Thus, the president has signed a proclamation to allow 100,000 metric tons of lean trim beef per month from September through November to be imported at the in-quota tariff rate. For those countries who have not met their quota, this means very little. For those who have exceeded their quota, the beef becomes cheaper to import, because the tariff/tax is less expensive. The announcement made by the president states “it encourages beef to be sold at a 25% discount from the going import price.”
This announcement will encourage more beef from Brazil and Argentina. However, it is not likely to have that great of an impact on beef prices. This proclamation strictly addresses ground beef and equates to approximately two pounds of beef per person in the United States. On top of that statement, this does not mean an additional 661.4 million pounds of beef will be introduced to the market as some quantity of the beef that comes in under the lower tariff rate would have come in anyway.
President Trump made another announcement the last week of August stating he would authorize legal documents drafted to allow ranchers “the right to process their own food.” At this point, it is difficult to determine what he is referring to that will make it easier. Most people’s initial thought would be on farm processing of animals. This would be extremely difficult in that most farmers lack the necessary skills and resources to slaughter and process a beef carcass. Even if it allows for a mobile slaughter facility to do the work, adequate cooling capacity is needed to chill the beef carcass prior to cutting and fabrication. Thus, since cooler space is not readily available and most people do not want to do the work necessary to cut a beef carcass, the most probable outcome is relaxing federal inspection to allow beef to enter commerce. In other words, there are state inspected facilities and custom slaughter facilities that have a small potential to increase local slaughter capacity, but labor and cooler space will still be a limiting factor. Much more speculating is possible on this subject, but the information on implementation is lacking at this point.
These are the major announcement that were made in August concerning the beef industry. More announcements may or may not have been made since the writing of this article. However, one thing is known, these announcements have all impacted the cattle markets in a negative manner as folks have bought the headlines and sold the facts. A little dose of commonsense thinking would go a long way, but common sense is not so common anymore. ∆
DR. ANDREW P. GRIFFITH
UNIVERSITY OF TENNESSEE