the weeks ahead? Several beef factories have been forced to shut

down. Nearly two dozen plants are functioning under capacity.

There is going to be a shortage.

It's been a volatile and crushing few months for the meat industry.

In March, the shelter in place, orders and shutdowns caused a

complete shift in purchasing behavior.

Panicked consumers moved from spending more than half their food

expenditure outside the home to mostly eating at home.

On top of that, an entire market was cut off when restaurants and

schools were shuttered.

By April, the coronavirus started wreaking havoc on workers and

processing plants. These are very different causes that created

different sorts of disruptions in the sector, both of them really

unprecedented in terms of any other events that we've ever seen.

Sick workers meant a broken supply chain.

Dozens of plants shut their doors and producers had to keep their

live animals on hold.

For the month of April, production of beef and pork dropped by 21

percent and 11 percent, respectively.

Some farmers resorted to euthanasia.

You can't just stop pigs from being born and continuing to grow.

And so when you have a group that gets stuck in the finisher and

can't move on to the packer, you then have the group behind them

that's knocking on the door.

Despite President Trump's use of the Defense Production Act, many meat

packers struggled to stay open.

Live cattle and pork prices dropped by 25 to 40 percent, while

wholesale prices more than doubled.

Near the end of April, meat prices at the grocery store had spiked 8

percent. We saw the largest daily increase and the largest daily

decrease in the past 20 years.

Within just the past couple of months.

Recent studies estimate 2020 losses to be 13.6 billion dollars for the

beef industry and nearly 5 billion for hog farmers.

But the supply chains, fragility and the repercussions that have

followed could last for months, if not years.

So how did this happen?

Meat is a huge business in the U.S..

It's no coincidence that a burger is the quintessential American

food. We had a big backyard barbecue.

We had dogs, hamburgers.

Americans consume more meat and poultry than any other country in the

world. About 220 pounds per year.

The meat industry is as complex as it is diverse.

While the basics of the supply chain is pretty much the same across

the board, the nuances within each animal type or each phase are

manifold. Poultry, it's almost entirely a completely vertically

integrated industry, which means that the integrator think Tyson or

Sanderson Farm owns the chicken from the day it's born until it's

sold to a grocery store.

You have farmers who contract with those integrators to grow out the

animals, but they never own the animals.

They provide a barn.

But even the feed is provided by the integrator in about 40 percent

of hog producers operate on this kind of production contract.

There are still independent hog producers and how they sell those

hogs depends on their relationships with the packers.

Hogs are sort of in the middle of chicken and cattle or cattle is a

much less vertically integrated sector.

It takes a cow anywhere from 21 to 30 months from the time it's

conceived until it's ready for processing.

During that time, the animals can go through multiple owners, leaving

producers with small margins and little room for sudden shocks.

In 2019, the average price of live cattle was a dollar and 20 pounds,

while the average wholesale price was 2 dollars and 23 pounds.

That precise price gap has led to long standing conflict between

producers and processors.

Ranchers and packers have always not liked each other, particularly

the ranchers, basically not trusting and assuming that the packers

are manipulating market.

There is very little research evidence that supports that.

While the live side of the supply chain involves thousands of small

and medium sized businesses, the packers and processors are dominated

by four key players.

J.B.S. Tyson Foods, Cargill and Smithfield Foods.

They control 50 to 83 percent of supply depending on the animal.

In 2019 the industry revenue was 230 billion dollars, nearly twice

that of the live side.

It's a high cost capital business and also working capital as you're

buying livestock every day.

And so it's a very difficult thing just to start and be successful.

And that's just partly led to this, you know, high degree of

concentration because of how critical it is for the economies of

scale. And consequently, that's why we've got fewer and larger

clients. The meat industry has experienced two crises during the

coronavirus pandemic.

While dramatic the first was short lived.

Supply chains adjusted to restaurant and school closures and shifts

in consumer behavior within the first month.

More meat plants shutting down tonight as workers get sick

The second wave has exposed the meat processing plants vulnerability

to the virus in unimaginable ways.

To put in place guidance that these plants were taking to protect

their workers that haven't been done soon enough.

And so now we have the current problem.

The CDC states that nearly 5000 workers have contracted the virus and

20 have died. But according to the Midwest Center for Investigative

Reporting, who used news reports, press releases, state data and

original reporting, the numbers are much more grim.

As of June 4th, at least 20,400 workers had tested positive and 74

had died. I think there are some legitimate issues relative to the

worker situation, particularly on the front end of this thing.

I'm not sure anybody really understood sort of how to be prepared.

These meatpacking plants, by their very nature, are extremely

difficult to manage a human disease like this.

Since early April, at least 48 processing plants have closed down

temporarily or indefinitely.

Compared to last year, production dropped by 34 percent for the week

ending May 2nd.

For some hog and chicken farmers, euthanasia was the last resort.

Many didn't have the space and putting on more fat decreases their

value. Cattle is more flexible when it comes to weight gain.

But for all animal producers, it boils down to economics.

They can only stand this for so long.

So they might they might go out of business or they may just get into

a sort of a financial hole that will take them perhaps years to

recover from. By May 1st, beef wholesale prices were up 67 percent

and live cattle was down 24 percent.

Pork wholesale prices increased by 100 percent.

There was a number of cattle that were coming through the system and

hogs to that were scheduled to be marketed at whatever price.

And then all of a sudden there's just basically no demand for some of

those cattle because the packing plants simply cannot process them.

And of course, at the same time, the cattle prices were going down

because the packers simply couldn't demand all the cattle that were

out there. That's what's got producers so upset right now.

They see their price going down at the same time, the meat prices

going up, and they think that means that something nefarious is going

on. And it's absolutely not it's because those marketing costs have

gone up dramatically.

And the supply and demand in the two markets are quite different

right now. On April 26, Tyson Foods CEO John Tyson took out a full

page ad in multiple newspapers warning the nation of a meat supply

shortage. He wrote, "The government bodies at the national state,

country and city levels must unite in a comprehensive, thoughtful and

productive way to allow our team members to work in safety without

fear, panic or worry." Two days later, President Trump signed an

executive order to invoke the Defense Production Act.

Now, the plants were deemed essential infrastructure and had to

remain open. More importantly, the order protected companies from

legal liability if workers got sick.

The industry praised him while the workers unions condemned his

decision. By the second week of May, prices started to bounce back as

more and more plants opened up.

As of June 4th, wholesale prices for cattle were 272 dollars and 26

cents per 100 pounds of cattle.

That's down 43 percent from May 12th.

Live cattle prices were 105 dollars, while live hog prices were still

lagging. These workers have to stay more spaced out in the plants.

That basically means you can't process as many cattle.

So the capacity, full capacity now is probably going to be maybe 90

percent of what it was before.

At least until this fall.

It's unclear if the worst is over for the meat supply chain or that

the coronavirus pandemic has exposed a fragile supply chain that will

require some serious adjustments.

One thing is for sure.

Having so much hinge on a few companies ability to get meat into

consumer's hands leaves the supply chain vulnerable in times like

these. It remains to be seen whether it's the right decision to open

many of the plants. Whenever you have a big labor challenge and it

drives up the costs of maintaining a labor force or it causes supply

chain, just disruptions.

You see automation.

If you go to McDonald's now, you can order from a person or you can

order from a board. Could you see the same thing in large scale

processing? Absolutely.

In the meantime, alternative meats are having a surgeon's despite

their higher price point.

Between mid-March and the end of May, the beyond meat stock price

increased by more than 130 percent.

Sales of fresh meat alternatives grew by more than 250 percent for

the 11 week period, ending May 16th.

Even before the pandemic, experts recognized huge potential in the

alternative meat industry.

Ultimately, it all depends on how our lives and the economy recovers.

If unemployment continues to rise or even lags for years, people will

trade down from more expensive to cheaper cuts of meat, perhaps less

meat altogether. Is this a once in a century event?

Should we respond accordingly?

Or is this something that we need to adapt to going forward because

it's going to be with us if we think it's going to be with us.

And yeah, it's a pretty fragile supply chain, mainly because we've

we've focused on giving consumers what they want, high quality food

at the cheapest price possible.

If we were to back away from that and make it a little bit, maybe

more robust supply chain, maybe a little bit smaller processors, it's

going to cost consumers a little bit more.

So there's a tradeoff there.

Hopefully that, you know, the stress that was on the sector, at least

we've got some release valve now that processing facilities are

moving again. There have been a number of large packing plants that

haven't had to close during this time.

There's no guarantee that their workers won't become ill.

But hopefully we've learned through this process and been able to get

us on a more positive path.