Meat Prices Suddenly Surge As Food Processing Plants Shut Down, With 1000s Of Tons Left To Spoil

By Tyler Durden

As we pointed out earlier in the week, China-owned Smithfield Food’s decision to temporarily shutter the largest pork processing plant in the US, based in Sioux Falls, SD, due to a coronavirus outbreak is a much more significant even than the mainstream media gave credit for. While WaPo focused on bashing the state’s governor, whose refusal to issue a ‘stay at home’ order was blamed for the outbreak, the real significant wasn’t accorded sufficient time and attention, we feel.

The real takeaway here is that the supply chain for American staples was badly damaged by the outbreak, with the damage still more extensive and stubborn than government officials have really acknowledged. Two months on, and millions of Americans are still having trouble finding toilet paper and sterilizing wipes. A comprehensive list of products in perpetual short-supply would be quite lengthy, at this point.

For all we know, Smithfield might be only the beginning. Earlier on Sunday, we noted a Hormel foods plant in Illinois has been forced to close temporarily after a cluster of cases in the surrounding counties was traced back to workers at the plant. That could leave millions of Americans without access to popular processed foods like Spam. An unopened can of Spam can keep for between 2 an 5 years, depending on storage conditions.

If closures like these continue, it could add further strain on the supply chain. Everywhere you look, you see experts talking about an overabundance of food thanks to the closure of restaurants, which has resulted in unprecedented levels of food waste. But, sadly, thanks to the way our food distribution is set up, if there’s no way to process the products, package them and then distribute them to markets around the country, then the food will spoil before it’s eaten.

And if enough hungry, scared, desperate and irrepressibly, unceasingly furious Americans hear that piles of food are being left to spoil in the farm belt as the country starves – or if a sudden burst of inflation rattles both the Fed and hungry Americans as one of the many worst-case “supply-side” shocks unfolds – well, they just might riot.

Bloomberg warned on Sunday that these closures, along with a handful of others, are already putting upward pressure on meat prices at the point of sale in the market. As more processing facilities close, supermarkets are left with fewer options – because unfortunately many farmers who sell mostly to restaurants simply aren’t equipped to ship to supermarkets, and these types of changes unfortunately take time, as frustrating as that might sound.

BBG does a better job explaining the phenomenon:

The slaughter-plant closures are the latest injection of volatility in food markets in the coronavirus era. Shifting consumer buying patterns and closed restaurants has upended the supply chain, resulting in surging prices for goods like eggs but also prompted farmers to dump milk and vegetables due to lost markets.

“When you have a reduction in the slaughter like we’re having right now, we are going to have a jump in the cut-out values,” said Brian Hoops, senior market analyst at Midwest Market Solutions in Springfield, Missouri, said by telephone.

Wholesale pork posted the biggest back-to-back gain in more than two years, rising 15% to 60.13 cents a pound. Last week, pork prices fell to the lowest since 2009, U.S. Department of Agriculture data show. Choice-grade beef prices climbed six straight days through Thursday, rising to $2.36 a pound, a one-month high.

The report also noted several other major slaughterhouses where workers have been diagnosed with COVID-19, and closures have been raised.

Smithfield Foods Inc., the world’s biggest pork producer, indefinitely shut down a slaughter plant in South Dakota this week after hundreds of workers tested positive for Covid-19. The plant typically accounted for 4% to 5% of total hog processing in the U.S.

Two people who worked at a Tyson Foods Inc. pork plant in Iowa died and two dozen are ill, with operations down. Three people died who worked at a Tyson poultry plant in Georgia. A worker at a Cargill Inc. plant in Colorado also died. JBS USA delayed the reopening of a Pennsylvania beef plant from Thursday to Monday.

The companies are working with government officials on cleaning and testing to ensure they safely produce food and protect workers. But the disruptions mean less meat, at least short term.

The coronavirus that has killed several workers and sickened hundreds of others at U.S. meat plants is raising concerns of a shortfall in pork and beef at grocery stores.

As some slaughterhouses halt or slow output and buyers brace for more disruptions, meat prices are surging.

“This is sending wholesale prices sharply higher and will result in a noticeable reduction in supply for the consumer,” said Cassie Fish, an Omaha, Nebraska-based livestock market strategist.

Bottom line: Thanks to the surprising complexity of food supply chains, there’s a scenario where farmers dumping milk and other products while factories and farms close or roll back activity while the number of product getting to the shelves falls, leading to instantaneous upward pressure on prices.

Of course, as Russell Clark (Horseman Capital) noted in his letter to investors last week, he is giving up on deflation after a decade, and bracing for inflation:

…what drives inflation is lack of supply. And I see supply chain disruption everywhere. I also see falling investment in the supply chain everywhere.

Of course, if inflation suddenly comes roaring back after all these years, that would be Jerome Powell’s worst nightmare: it would force the central bank into a terrible dilemma: either hike rates and destroy the economy, or keep them low, and risk triggering a cycle of uncontrollable hyperinflation, that could cause just as much damage – probably more.

Source: ZeroHedge

Also Read from Natural Blaze: NO MORE MEAT: Plants Close “Indefinitely”

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