CALF_News_June_July_2020

24 CALF News • June | July 2020 • www.calfnews.net By Olivia Willrett Contributing Editor GOVERNMENT P urchasing everyday items on a normal trip to the grocery store has now become a routine cry of “price gouging,” all because of a global pandemic named similarly to a favorite Mexican beer. Sounds like something out of a movie, but it’s our reality – or should I say,“new reality.” It seems every issue associated with recent changes in prices for everything from toilet paper to T-bones is because some big, greedy corporation views this as the prime opportunity to profit from soci- etal struggles. But have we considered the idea that there are sound, economic reasonings behind these volatile prices? While most have experienced suspect price fluctuations – and empty shelves – in the grocery store, the latest product to see skyrocketing prices is meat. Food scarcity is nothing to joke about. Prior to the COVID-19 outbreak, food insecurity wasn’t an uncommon problem in many communities; however, with supply chain disruptions and volatile pricing, we might just be setting ourselves up to exacerbate these already-present problems. While consumers claim price gouging in the grocery store, American farmers and ranchers are accusing packing plants of the same practice. Prior to the global pandemic, turning a profit in an opera- tion that depends on a multi-segmented supply chain, Mother Nature and consumer confidence was tricky enough. Factor in an economic shutdown and supply-chain blockages, and many feel like they’re fighting a losing battle in rais- ing a safe and healthy beef product. And, for the cherry on top, the black sheep (or red steer?) of the supply chain is making record-breaking margins. Doesn’t seem fair does it? The sixth-generation family operation that works 12-hour days, seven days a week can’t make enough money to afford the product they contribute to producing. At least this is the story that’s out there. But, in a free market what actually con- stitutes fair? Now, instead of approaching the issue with an ethos mindset, let’s try some economic reasoning. Oftentimes, beef and cattle are considered synonymous, hence the beef supply chain. However, they are two separate commodities with separate supply chains that become intertwined in one location – the packing plant. So, while the boxed beef cutout and live cattle prices are strongly corre- lated, their pricing can be explained by two separate, albeit intertwined, supply and demand settings. First we’ll look at cattle. In normal circumstances, our weekly supply of fed cattle reasonably fits the demand for kill by the packers, resulting in relatively consistent pric- ing. However, with recent reduced kill capacity in packing plants due to COVID-19, our supply of live animals is greater than the demand because packers simply can’t harvest as many cattle daily as they were prior to the virus outbreak. Considering basic economic concepts, consistent supply of cattle met with a reduction in demand from the packer means a reduction in price for the live animal. This is rather unfortunate for cattle producers, but it sets off an economic signal – reduce supply which, in turn, fixes the pricing problem. However, this is where emotion and the rules of a free market butt heads. Reducing supply means some ranchers and cattle feeders will fold. But, before we take this as the golden fix, let’s look at our second supply chain. Beef supply comes from the packers where it’s “created.” However, the same scenario mentioned earlier still exists – packers are unable to harvest at the pre-COVID chain speeds, meaning they are producing less beef than before to meet demand from their customers. This has prompted volatile demand trends – hoarding – which is triggered by fear. We’ve begun seeing empty meat cases in the grocery store, which only feeds (pun intended) fear of food shortages, prompting more hoarding. (Rumor is freezer sales have skyrocketed.) This results in a short-term spike in demand, which is met with reduced supply result- ing in record-breaking boxed beef prices and, in some locations, ground beef reaching $10 per pound. The solution? It appears that in order to fix cattle prices, we need to reduce our supply of cattle, but to fix beef prices we need a greater supply of beef. This is where the supply chains converge. We can’t have more beef without more cattle, and we can’t reduce cattle numbers without reducing beef supply. Herein lies the uniqueness of our situation. While the supply and demand disparities are causing pricing problems, our real solu- Supply and Demand Through the COVID Lens DOWN the Rabbit Hole Photo by Larry Stalcup