The United States is home to an abundant, affordable, safe and secure food supply. This is made possible by the presence of enormous vertically-integrated agricultural commodities conglomerates operating in various segments across industries, from the farm to feedlot and slaughterhouse to distributor. For example, an estimated 50.0% of all domestic meat processing is conducted by just four companies; this concentration is even higher in the beef processing segment alone. While this provides for significant operating efficiencies in the form of low-cost meat, this also concentrates operating risk among these four companies.
Deja-moo
JBS SA (JBS) is one of the aforementioned companies. By tonnage, the company processes about 25.0% of the nation’s beef supply and about 20.0% of its pork supply. As a result of a targeted cyberattack in late May 2021, JBS experienced substantial processing capacity disruptions, and the resulting issues sent shockwaves through the supply chain. Live cattle prices weakened due to feedlots’ inability to remain current. Meanwhile, prices for distributors and retailers skyrocketed due to the bottlenecking in national processing capacity.
If this sounds familiar, this is exactly what played out roughly one year ago during the onset of the COVID-19 (coronavirus) pandemic. Low processing capacity resulted in implied scarcity, and thus, consumer prices for finished products rose while live cattle backed up and returns to livestock farmers plummeted.
Price movements in response to May 30 JBS cyberattack and plant shutdowns
- According to the USDA, beef cattle slaughter rates dropped 22.0% the last week of May 2021, while hog slaughter was down 20.0% as a result of the cyberattack.
- According to the same source, since the end of the first quarter of 2021, wholesale finished beef prices have surged 43.0%. In comparison, live cattle prices are only up 5.0% during the same period.
- Cattle futures plunged in response to the slaughterhouse backup, with the highest volume cattle contracts declining 1.9% to an estimated $1.17 per pound as live cattle backed up.
Greener Pastures
Overall, the current dynamic in the agricultural commodities supply chain suggests that, as a result of the coronavirus pandemic and other negative supply shocks, meat prices will likely rise in the short-term. However, long-term prices and operating conditions will likely depend on the private market and governmental response. Private market actors favor increased investment in meat processing capacity or increased decentralization, while governmental actors are seeking to impose more stringent price transparency regulations. Nonetheless, the goal of supply chain resiliency and security should remain paramount.
