Where’s the Beef? – Not on the Horizon

Guest Post by Tom Luongo

The reports continue to come in that there’s a real problem with the U.S. food supply. From McDonald’s reviewing their supply chain for beef to the pleas of ranchers already staring at feeding issues with last year’s poor harvests the signs are there for a major supply dislocation in beef going forward.

Kroger is limiting the amount of beef and pork people can buy. My local Winn-Dixie has had limits on large cuts of pork for the past couple of weeks. Porn loins have been gone for weeks now, so no pork jerky for us, which is a tragedy.

Now Wendy’s, which doesn’t use frozen beef, is reporting more than 20% of their stores are out of beef.

Stephens analyst James Rutherford noted 18% of Wendy’s restaurants were “completely sold out of beef items as of Monday evening,” reported Bloomberg.

“By our count 1,043 Wendy’s units were selling zero beef items yesterday evening,” but within the figure, about 128 restaurants were still selling beef chili. Rutherford added that the shortage varies across the country and said some restaurants still have full menus, while states like Ohio, Michigan, Tennessee, Connecticut, and New York are “fully out of fresh beef.” The note also said Wendy’s is “more exposed” to meat shortages because of its reliance on fresh beef compared with its competitors.

If you subscribe, like I do now, to the idea that this Coronapocalypse is mostly a cover story for the failures of the global financial and political system to usher in a new round of totalitarian control then destroying the most vulnerable, yet important, part of our food supply would be a key strategic goal.

My talk with Patrick Henningsen of 21st Century Wire recently covered the motive, means and opportunity for why this perspective should be our default setting.

But this beef shortage has been a year in the making. Last year because of poor grain harvests, especially corn, where millions of bushels came in at quality not even fit for silage, we were already expecting disruptions in the beef market as ranchers were thinning herds and bidding up the price of feeder calves earlier in year.

I’ve spoken with ranchers here in Florida about this. And this is an area which 1) grows a lot of cows, and 2) where meat packing plants have been mostly unaffected by COVID-19. So, it’s important when I tell you this dynamic in January and February has completely reversed itself.

Finished cattle are fetching excellent prices while feeders are down. Comex Live Cattle futures, however, have yet to get the news because the dislocation in the supply chain has farmers slaughtering animals faster than they can be processed and brought to market.

And just like in the oil industry, once you kill a heifer or cap a well it takes a long time to bring that lost supply back into the supply chain.

Moreover, the supply bottlenecks are not at the independent processors, but the large scale ones who are optimized to feed this meat into the restaurant and food service supply chain rather than to the supermarkets.

And even then, they are experiencing shortages, which means there is a real dislocation in the supply chain that isn’t going to be easy to unwind.

More than chicken or pork, beef is vulnerable because of the life cycle of the cow and the time necessary to rebuild a robust supply chain. And with huge uncertainty in the market right now who can blame ranchers for conserving cash and being defensive.

This is no different than any another commodity with high start up costs. It involves high risk and a long time to return on that risk. So when the market gets ugly, better safe than sorry.

Why?

Because animals take a long time to recover when lost. I’ve been there, I’ve lost dairy goats to disease. Not only does it break your heart losing an animal you’ve bottle raised but you’ve lost years of input costs and future production.

For a cattle rancher looking at slaughtering middle-aged, productive heifers because of poor market conditions the time is prohibitive. Here’s the data for how long it takes to replace the lost production from this year because it was slaughtered as opposed to birthing next year’s food.

Shave a month or two off these times depending on breed, conditions etc. but the basic math is inarguable. Slaughtering a productive heifer takes around six years to replace.

Pigs aren’t nearly as bad. This is why the pork industry can bounce back so quickly from swine flu outbreaks.

And guess who can ill afford to lose these heifers? The smaller ranchers working on thinner margins because they have fewer animals to spread fixed costs over.

If you think the fixed costs due to government-mandated food safety and the like will be lightened in the coming years, then I suggest you are terminally naive. If anything it will get worse for domestic producers.

Because we’ve blown open gaping holes in government budgets which can’t be filled with deficit spending. So, we’ll see more stringent enforcement of petty crimes and an increase in fines which always fall hardest on the smaller producers who don’t have the resources or political clout to fight them.

In fact, this is what I’ve been banging on about as the real problem with our response to the financial crisis and the Coronapocalypse. Why has the private sector been shut down, tens of millions thrown out of work, while no one is talking about downsizing the costs of local, state and federal government agencies?

As a libertarian I want to see freedom return to the food production industry, the barriers to small farmers torn down and the assumption of risk placed back on the consumer and producer equally rather than the government through the USDA providing the false security of its stamp of approval and leaving the door open to systemic corruption and inefficiency.

Why are the productive members of society losing their jobs by the millions? These are the people who produce the taxes which pay for all this wonderful government oversight which is responsible for clogging up the supply chains for everything from oil to beef to paper products.

Shouldn’t they be the ones at work? Shouldn’t the secretaries, janitors, administrators, middle managers, statisticians, HR managers, lawyers, assistants and department heads who cost taxes to pay their salaries be the ones on the unemployment lines?

How many jobs could we save by downsizing, right now, the Federal government back to levels seen just ten years ago? Imagine how much cheaper things would be if most of the USDA and Department of Agriculture were laid off right now and those savings used to not pay farmers to plough under crops to maintain prices or slaughter animals which are now financial burdens.

Imagine how many lives wouldn’t be needlessly destroyed (the stock) and disrupted (the people) while we quickly reorient capital spending towards the things we truly need.

Now what if instead of freaking out and destroying our society and our food supply about a disease not much worse than the annual flu our state and local governments did the same things?

At the end of the day the costs are the costs and bailing out one side of the tax ledger is demonstrably more expensive than bailing out the other. Because every private worker laid off is another one not paying taxes to support the job of the government worker.

And we still have to pay both unemployment and the government worker’s salary. If you fire the government worker, you just have to pay his unemployment. The salary and the benefits are eliminated.

If we have to downsize and tighten our belts during a crisis, why shouldn’t we start with the true luxury item, government itself.

Beef isn’t a luxury item it is a response to our expanded and diverse division of labor which allows us to utilize the vast lands of North America to grow cattle, lands beautifully suited to the task with people happy to make their living doing so.

But it will not continue so long as busybodies and ideologues continue standing in the way of our solving real problems.

The problem isn’t the farmers, the truckers, the refrigeration companies and the consumers, the problem is where it always is, in the decrees of clueless government officials with a pretense of knowledge who use their monopoly power over pointing guns and using force to stand in the way of progress during the good times and fixing what’s broken during the bad.

And until we get this through our thick heads, until we stop looking for handouts and bailouts we will have no one to blame but ourselves, especially when the pantries are empty and hamburger is $12 a pound.

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