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CME: Reopening of Tyson Beef Plant Likely to Take Time to Reach Full Capacity

20 December 2019

US - The Tyson plant, that shut down from a fire in mid-August, was scheduled to reopen its doors and begin accepting cattle the first week of December. This plant will likely take time to reach full capacity, according to Steiner Consulting Group, DLR Division, Inc.

Labor has been a source of constraint for many of the new hog plants that opened over the last two years, but press releases have stated that Tyson continued to pay workers during the shutdown. This would imply minimal downtime related to training and workforce issues.

Still, the question remains how quickly will this plant will return to full capacity at a location that once held 6 percent of US slaughter capacity. Actual slaughter data has only been released through the last week of November, but estimated slaughter is released through 17 December 2019.

Saturday kill levels have provided a pressure relief valve for packers to slaughter additional steers and heifers after the Tyson plant fire. Estimates that are coming in after November are showing notable decreases to Saturday kill. The Saturday after Thanksgiving gave way to high volumes as expected during a holiday week.

The latest Saturday estimate of 14 December 2019 showed an estimate of only 54,000 head. That number is the smallest Saturday kill since the week of the Tyson fire of 46,553 head. Actual slaughter data will provide more accurate figures but the estimates point toward space slowly opening in packing capacity.

Cattle slaughter estimates have maintained that cattle slaughter is still above a year ago, but at least some of that is attributed to higher cow kill, which is not related to the Tyson plant reopening. Actual slaughter numbers for steers and heifers will be released for the first week of December later on today, which could still be too early to see those plant impacts.

Fed cattle prices imply packer demand has been strong and in the 5 area have climbed for 13 straight weeks., and topped $119.17 per cwt for all grades in last week’s weighted average price.

Early trades made this week show that by the weekend we could be looking at another week-over-week gain in cash prices. However, it would be overly simplistic to view this as all due to Tyson reopening, especially without concrete data on how many cattle have been received at that location.

Other moving parts in the short term include the December futures contract selling at a premium to current fed cattle cash prices– the December futures contract closed above $122 per cwt yesterday. Taking into account the cost of delivery, this could provide some upward movement on cash prices but likely not much.

Cash moving within the neighborhood of $2 per cwt of the December futures contract is not likely to trigger additional deliveries. The February contract, too, is looking very attractive to roll hedged positions and could delay marketings another 30 days.

Choice boxed beef prices have fallen off sharply this week, declining nearly $4 per cwt from Monday to Wednesday. This weaker price profile is following a week of very strong volume and could be indicative of retailers buying earlier in the month in preparation for two holiday weeks (Christmas and New year’s). Having two holidays in the middle of weeks will likely affect cattle buying also this week as they are preparing for processing in two short weeks in a row as well.

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