PARTNERS

By Vicky Boyd

Grocery shelves and refrigerated cases are filling once again as panic buying has subsided and consumers settle into COVID-19 shelter-in-place rules. But the supply chain disruption caused by the shuttering of many food service outlets continues to impact dairy and beef cattle producers who face low prices and the possibility of packer slowdowns or closures when they try to sell their animals.

“The real problem with dairy and beef is the supply chain between us and the consumer – it’s the real bottle neck right now,” said Jack Hamm, a Lodi dairy producer and SJFB board member.

Since 2010, consumers annually have spent more food dollars away from home than they do at home, according to figures from the U.S. Department of Agriculture’s Economic Research Service. Of the money spent on food outside of home, 7.9% is at schools or colleges, 36.1% is at limited-service restaurants and 35.8% is at full-service restaurants, according to the National Restaurant Association.

When state and local authorities closed schools and restaurants in mid-March and allowed only delivery or take-out, food service suppliers took a big hit. Because of institution-sized or specialty packaging, shifting products from food service to consumer retail isn’t easy and may be too costly to undertake.

Milk

After years of depressed milk prices, the market began to turn around in late 2019, causing renewed optimism.

“I really expected to have a good year,” Hamm said. “Starting in December, we had four good months. Then it went from really good in March to who knows what we’re going to get paid for our April milk. We won’t know until May, but if I have to guess, I’m going to say it’s going to be ugly.”

Hamm has a contract to ship milk to the Hilmar Cheese Co. for cheese production. So far, he has not exceeded his contract volume and has not had to dump surplus milk.

An upside of cheese is it can be put in cold storage for a while until demand picks up. Much of Hilmar’s production goes to food service, and the plant isn’t capable of taking 40-pound blocks or industrial sized bags of grated cheese and repackaging them into 1- to 2-pound consumer portions.

With cheese inventories increasing and demand depressed, the price Hamm receives for his milk has dropped by 50% since January. “That’s like dumping our milk every other day.”

He has looked at a number of options to reduce costs, but each has down sides. If Hamm were to sell less-productive cows on the livestock market, he said he’d be basically “giving them away” because of low beef prices. Drying cows early can pose long-term health risks if not done correctly, and producers still have to feed dry animals.

The price of corn, the main ingredient in most feed rations, has decreased. But the price for protein ingredients – such as canola meal, soybean meal and distillers dried grain – has increased disproportionately.

“So it’s really hard,” Hamm said. “The future looks very, very bleak for the next couple of months. It’s pretty scary.”

The county agricultural commissioner’s 2018 annual report ranked milk, with a value of more than $360.3 million in 2018, No. 3 among San Joaquin County’s commodities.

Beef

An Oklahoma State University Cooperative Extension study released April 14 found that the coronavirus is responsible for $13.6 billion in economic and revenue losses to the nation’s beef industry. Broken down, the damage amounts to an average of $216 per head of cattle.

The study, conducted at the request of the National Cattlemen’s Beef Association, pointed out the complexities within the industry, which includes the cow-calf sector, the stocker/background sector and the feedlot sector.

“Every sector of the beef cattle industry and cattle producers in every state have been significantly impacted by COVID-19,” according to the report.

Coming off of a dismal 2019, Linden-area cattle producer and SJFB board member Kenny Watkins had higher hopes for 2020.

“Last year was bad, bad, and everybody said ‘keep them, keep them,’ and it would get better,” he said. “It never got better. Now it’s just gotten nothing but worse.”

Although producers can hold onto their animals, hoping for better prices, he said they eventually have to cut their losses and sell.

A cow-calf producer, Watkins is at the end of the price value chain. Losses in cattle feeding and stockers are passed back to the cow-calf level.

As cattle producers have struggled with low prices, retail beef prices have remained high. At the request of NCBA, U.S. Agriculture Secretary Sonny Purdue has asked the U.S. Department of Agriculture’s Packers and Stockyards Division to investigate the price disparities. Specifically, Purdue asked the division to look at the differences between boxed beef – wholesale cuts packed in a box – and live cattle prices as well as the impact of COVID-19 on the market.

What also has Watkins worried is the increasing closures of large packing plants -- including JBS Swift, National Beef Packing Co. and Cargill -- due to workers falling ill to COVID-19.

“All bets are off with the way they’re going,” he said. “They’re closing kill plants, feedlots are backing up and putting more pressure on our prices.”

Once shelter-in-place restrictions are relaxed, Watkins said food service demand should pick up, creating “a hole in the meat supply and hopefully prices will go up.”

With a farmgate value of more than $102 million, cattle and calves ranked No. 6 among San Joaquin County commodities in 2018.

Poultry

During the initial week to two weeks of the statewide shelter-in-place order, the state’s chicken processors moved 200% to 400% more product than they did the same time last year, said Bill Mattos, president of the Modesto-based California Poultry Federation.

“It was a shock to me that people bought it up so quickly,” he said.

The break-neck sales have leveled off, and grocery shelves are being restocked as processors backfill the voids.

Most of California’s chicken is sold fresh in retail outlets. Only 10% to 20% goes to food service, he said.

“We can adapt pretty easily,” Mattos said. “It can still affect the industry. But because our sales were so good at retail, it offset some of the food service.”

Hardest hit were specialty poultry producers, such as those who grow squab and duck for high-end restaurants.

One of his big concerns is keeping the poultry processing plants open and running.

“They’re trying to work with employees as much as they can, but with all of this coronavirus hype, people are scared to work, even though they are essential employees,” Mattos said.

Processors have implemented worker safety programs that involve taking temperatures daily before employees enter facilities. They also are trying to spread out employees for better social distancing. In addition, they’ve increased hourly pay temporarily for the next three to four months.

Minimizing human interaction shouldn’t be a problem on the chicken ranches because visitors are prohibited and facilities are gated as part of long-standing biosecurity efforts, Mattos said. Only one to two people typically work in each facility’s chicken houses.

Eggs and chickens, with a value of more than $105.8 million in 2018, ranked No. 5 among the San Joaquin County’s commodities in 2018.