2.5 Billion Pound Meat Glut Could Lead To "Biggest Correction In Years"

According to a new report by the Wall Street Journal, a mountain of meat is building in U.S. cold-storage facilities, spurred by a surge in production and President Trump’s trade war that is pressuring foreign demand.

More than 2.5 billion pounds of meat from beef, hog, poultry, and turkey are being stockpiled in cold-storage warehouses across the country amid trade disputes with major U.S. meat exporters. New federal data, coming out as early as Monday, is expected to show a record level of meat, which could send the industry into a continued deflationary collapse.

U.S. consumers’ demand is increasing, but not at levels that are in pace with record production of chickens and hogs. The excess supply is generally exported to Mexico and China—among the biggest foreign buyers of U.S. meat — have both recently slapped tariffs on U.S. hog products in response to President Trump’s tariffs on steel, aluminum, and other items. Industry officials told the WSJ that U.S. hams, chops and livers have become more expensive in international markets, coupled with a strong dollar weighing on local currencies, which has dramatically reduced demand for U.S. meats.

America’s meat industry production is rapidly filling up the specialized warehouses built to store meat. “We are packed full,” said Joe Rumsey, president of Arkansas-based Zero Mountain Inc.

Rumsey told WSJ that the company’s five storage facilities are stockpiling roughly 250 million pounds of chicken strips and turkeys on any given day.

Rapidly increasing meat stockpiles could force prices into a continued downward trend, which could be beneficial for meat-hungry U.S. consumers, along with restaurants and food retailers. While what is good for the consumer is usually bad for businesses, deflationary prices are quickly eroding margins for meat processors.

Since November of 2014, Live Cattle Futures at the Chicago Mercantile Exchange have plummeted -45 percent to -36 percent.

A similar move has occurred in Lean Hog Futures at the Chicago Mercantile Exchange, which has collapsed -69 percent to -61 percent since June 2014.

Christine McCracken, a protein analyst at Rabobank, said the combination of trade wars and expanding meat supplies could result in “one of the biggest corrections we’ve seen in the industry in several years.”

Some hog farmers and hog processors are canceling capital expenditures, or CapEx, investment in the U.S., while other meat packers are scaling back production. Meanwhile, storage facilities across the country are reportedly running out of space to store the mountain of meat.

Maschhoffs LLC, a privately held hog-farming company, based in Carlyle, Illinois, has suspended upwards of $30 million in CapEx investments planned to increase breeding operations and facility upgrades.

“We’ve got too much capacity built in this industry if we’re not going to be exporting more product,” said Ken Maschhoff, the company’s chairman. He is instead considering expansion into Eastern Europe or South America—places where the company’s hogs perhaps can’t be raised as cheaply as in the U.S. but where he said trade policy isn’t so “geopolitically charged.”

McCracken also said hog processors had reduced hours at processing plants, and some plants even have rejected new hogs for slaughter. Representatives for Smithfield Foods and JBS SA, some of the largest U.S. hog processors, did not respond to WSJ for the chance to comment about the ongoing glut. A spokesman for Tyson Foods Inc. said, “the company’s pork production has matched available pig supplies and that Tyson continues to export pork despite the tariffs.”

The Journal noted that meat mountain has been building before the trade disputes. However, the recent round of tariffs has made the situation worse. Part of the glut is thanks to overproduction caused by declining feed costs. Over the past decade, U.S. meat production has been increasing and could hit a record 102.7 billion pounds later this year, according to USDA reports.

As a result of the glut, cold-storage warehouses across the country are rapidly filling up. The USDA in June estimated a total 2.5 billion pounds of red meat and poultry in U.S. cold-storage facilities as of the end of May, indicating that today’s storage capacity is about 8 percent above the prior-year period—and just shy of the record.

Industry officials told WSJ that exports are critical to balancing out domestic supply.

“The more you store, chances are you’re going to have to export more of it,” said Altin Kalo, a commodity analyst with Steiner Consulting Group. “Even with the tariffs, there’s only a certain amount of product you can shift into the domestic channels.”

Thanks to President Trump, Canada implemented a 10 percent retaliatory tariff on U.S. beef starting July 01, and China increased its tax on U.S. beef to 37 percent on July 06. Mexico, the largest export market for U.S. pork, in June ordered a 10 percent tariff that soared to 20 percent this month. The USDA indicated that overall exports to Mexico are slightly higher than 2017, however, new weekly export data reported for the week of July 05 came in at their lowest levels in more than a year.

USDA Secretary Sonny Perdue said that the Trump administration understands the financial hardship of livestock producers as a result of retaliatory tariffs. Perdue indicated the administration is examining Depression-era programs that authorize $30 billion from the Treasury to compensate farmers for tariff-driven price declines.

Last week, farmers and ranchers warned the House Ways and Means Trade Subcommittee, chaired by Rep. Dave Reichert (R-WA), that Trump’s trade war could have “dire” consequences for the nation’s agriculture industry. They stressed that the impacts of tariffs do not end well and could collapse rural America:

Kevin Paap, a corn and soybean farmer from Minnesota, stated:

“Trade is all about relationships. … We would urge to anybody and everybody that is listening how important it is that we maintain those relationships because once we lose that market it is really tough to get it back.”

Scott VanderWal, a farmer from South Dakota, said the uncertainty of a trade war disrupts entire supply chains and will be chaotic to rural America:

“We’ve got a decreasing population in our rural areas already. If we lose any more population in the state in these rural areas, not only does it make the young farmers and ranchers leave, or the retiring or about to retire people…it also takes out the people who supply those farmers and ranchers. The feed store, the fertilizer people, those that supply the things that we need to raise the products that we do. It has a tremendously long tail.”

While the Trump administration has good intentions, it seems as the consequences of a trade war could be catastrophic for farmers, ranchers, and meat packers, as a 2.5 billion pound meat glut could force the industry into a deeper deflationary collapse.

Comments

Adolfsteinbergovitch Theosebes Goodfellow Mon, 07/23/2018 - 18:15 Permalink

They no longer have enough room to store the cadavers of their victims. 

I hope this deflationary crisis will force farmers to raise good food for once. This mountain of GMO fed factory animals is disgusting, so disgusting that they have to wash the meat in bleach to kill off the various pathogens and parasites these animals carry while living in their own shit. 

As long as people don't realize the adverse health effects eating this excuse of food has on them they will continue to ingest that crap. 

In reply to by Theosebes Goodfellow

CriticalUser Stuck on Zero Mon, 07/23/2018 - 15:56 Permalink

Better to find ways to avoid beef meat:

- on a personal level because beef is bad for health (type-2 diabetes + cardio-vascular diseases + colorectal cancer)

- on a planetary level because cattle is one of biggest cause of greenhouse gases and rainforest deforestation. The Amazon rainforest is being destroyed and replaced by soja fields (cattle feed).

In reply to by Stuck on Zero

css1971 Yog Soggoth Tue, 07/24/2018 - 05:01 Permalink

3 teaspoons of sugar in a typical modern apple. Fruit is for autumn.

Veggies are totally fine though as far as I can tell (excluding starchy ones), all the sugar is locked up in fibre which takes ages to process, and so blood sugar and insulin are kept low.

 

Superb web site:

Fruits: https://www.dietdoctor.com/low-carb/fruits

Vegetables: https://www.dietdoctor.com/low-carb/vegetables

In reply to by Yog Soggoth

css1971 dark pools of soros Tue, 07/24/2018 - 04:52 Permalink

Aand Nope. HFCS and real sugar are damned near identical. Both contain glucose and fructose in about 50:50 proportions.

 

"Real" sugar fucks you up just as badly as HFCS.

 

Specifically, fructose (fruit sugar) seems to be what triggers the body into "store for winter" mode. Your body is designed to deal with food seasonality. That means greens in spring/summer, fruit/sugar in autumn. Then in winter either nothing at al, or, fat/protein.

If you constantly eat sugar/carbs, you're constantly telling your body that it's autumn and it has to store everything (high insulin[1]) cos WINTER IS COMING!

 

Start thinking of carbs in terms of "teaspoons of sugar", because your body turns them all into glucose. Stop consuming them and tell your body that WINTER IS HERE. The weight will fall off you, your blood sugar levels, and blood pressure will plummet, your sugar cravings will vanish, inflammation markers will also drop dramatically. Skin and hair will improve. Hunger will damned near vanish too. Your doctor (because most are quacks) will be completely astounded.

 

For carbs => sugar, HFCS, bread, pastries, pasta, noodles, breakfast cereal, rice, potatoes et al.

 

Should probably also avoid polyunsaturated seed oils.

[1] FYI, It isn't just carbs that stimulate high insulin: https://en.wikipedia.org/wiki/Insulin_index

In reply to by dark pools of soros

CriticalUser css1971 Mon, 07/23/2018 - 17:04 Permalink

Low-Carb High-Fat (LCHF) says nothing about meat intake. I may hope it is known by all that sugar is the primary cause of type-2 diabetes.

Now about the "vegan conspiracy": mind you that Big Cattle has tremendous political and financial influence. And they sometimes buy biased "research" that is set to disculp red meat, their cash-cow. Pun intended.

In reply to by css1971

OverTheHedge Stuck on Zero Mon, 07/23/2018 - 16:40 Permalink

Think about the poor farmers - thousands of pigs, turkeys, bullocks etc, and the slaughterhouses are refusing to take the animals. Either the farmers continue to feed and house animals they can't slaughter, (and with tight margins they have no room or feed for that) and lose the tiny margin that makes for profit, or they kill the animals and throw them in a handy river, and take a thumping great loss, or they declare bankruptcy, and leave it to someone else to worry about what on earth to do with hundreds of thousands of surplus live beasties.

Of course, your McFakeBurger will be cheaper, so all is good.

In reply to by Stuck on Zero

Jackprong OverTheHedge Mon, 07/23/2018 - 17:05 Permalink

The meat prices have been ridiculous due to high demand.  When a commodity era ends (the current one began in year 2000), prices must be reduced.  I know the farmers really have a tough act and that capital has been drawn down on a lot of farms.  A lot of packing plants have been built and throughput has been strong.  With the exports being on the margin and now reduced, maybe the consumers will finally get a break. 

In reply to by OverTheHedge

Sudden Debt Stuck on Zero Mon, 07/23/2018 - 17:20 Permalink

America should ban the addition of steroids in beef and if they did, Europe would directly buy it.

For now, American meat is more chemicals then real beef.

 

Bigger isn't better. When possible, Americans should eat some European beef to taste the difference. After a while, you'll be able to taste the chemicals they put in American beef.

when on vacation in America, I can't eat anything without thinking about the crap I'm eating.

In reply to by Stuck on Zero