Distortions in the Beef Industry

USDA cut the 2020 US beef production estimate  through the summer because of processing plant closures. The chart shows the changes on an annual basis.

In April and the first half of May beef production dropped roughly 20% because of plant closures.

But the number of cattle being processed appears to have bottomed in late April. USDA may be too pessimistic for activity in the summer livestock sector. The closing of packing plants and the resulting distortion is well illustrated when the dressed carcass value minus live steer cost is charted. Packers have plenty of incentive to get plants back to work.

We have scattered the domestic beef supply per person and the price of fat steers.

The function had been stable prior to this year. The gap between the historical years and 2020 will be resolved either  with beef supply larger than the USDA has projected, the price of live steers higher, or the market will continue with very wide packer margins because plants stay closed. We would bet on plants coming back on line.