By Noah Rothstein
The U.S. beef industry is ramping up production after Brazil’s JBS SA (JBSS3.SA) suffered a ransomware attack that disrupted meat production in North America and Australia.
The cyberattack left JBS’s beef and pork processing capacity crippled. With North American operations headquartered in Greeley, Colorado, JBS controls about 20% of the slaughtering capacity for U.S. cattle and hogs. USDA’s daily cattle slaughter estimates revealed 94,000 head of cattle were processed on Tuesday, June 1, a drop of 27,000 head from the same time a week earlier.
Adding fuel to the fire, U.S. cattle ranchers and investors have been reeling from the effects of the pandemic. They sunk hundreds of millions of dollars into new beef plants after temporary closures of massive slaughterhouses at the start of the COVID-19 pandemic left farmers with nowhere to send animals.
Ranchers and the U.S. Department of Agriculture (USDA) said the sector is too consolidated and therefore reliant on a handful of large processors and their industrial meatpacking plants.
Four industry behemoths, JBS USA, Tyson Foods Inc, Cargill Inc, and National Beef Packing Company, slaughter 85% of grain-fattened cattle carved into steaks, ribs, and roasts for consumers.
Smaller startup meat plants aim to provide local ranchers with more places to slaughter cattle, particularly those raised to produce higher-quality beef. They claim adding plants can ensure some meat production continues if large facilities close.
Moreover, small facilities face some of the same challenges as larger enterprises, notably a labor shortage, without the benefit of a big corporation supporting them.
When large meat plants close, meat supplies tighten, while ranchers get stuck with cattle that would otherwise have been slaughtered. That means the price of cattle generally falls while the price of meat in supermarkets rises.
Nationwide, at least five new processing facilities of varying sizes have opened or are planned following supply shocks early in the pandemic. Combined with expansions at existing plants, including one owned by JBS, daily U.S. slaughter capacity is set to increase by about 5%, according to a Reuters calculation and data from industry group the North American Meat Institute.
Market conditions are favorable for new entrants. Cattle supplies are ample, while beef prices and profit margins for packers have soared due to strong exports and demand from U.S. consumers.
The rise in beef prices has been spurred by increasing demand from China, limited cattle supplies in some countries, a shortage of slaughterhouse workers, and rising feed costs. The trend is starting to rattle supplier markets and impact policy.
U.S. beef exports to China hit a monthly record in March of 14,552 tons, according to the U.S. Department of Agriculture, well above total shipments in all of 2019. A growing middle class in China is making room for beef in a diet that has long been pork-based.
USDA projected that total exports of bulk commodities and meat would reach record levels for both volume and value in FY 2021. On the bulk commodity side, this is true for both corn and soybeans exports, with sorghum export value also at a record high.