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Tyson Foods, the largest meatpacking company in the US, announced last week that it is closing two of its facilities in Illinois and Utah and selling a beef facility in Washington state, and will lay off hundreds of workers as the supply of cattle hits a 75-year low.
The historic cattle shortage has been driven by a multi-year drought, rising costs and severe economic pressures, including consolidation among cattle ranchers. Beef prices have soared over the last year due to the shortage, though economists said the Tyson plant closures likely won’t hit consumer prices so hard.
Earlier this month, Tyson reported in its third-quarter earnings that beef volume is down 15.9% and beef operating loss is at $138m.
Economists said the Tyson plant closures alone aren’t expected to have a big impact on beef prices. Glynn Tonsor, an agricultural economist at Kansas State University, said the US has had excess capacity for processing and packaging beef for several years now, and beef that would have been processed in Tyson’s Illinois and Utah plants will just be rerouted.
“For the majority of the last 40 years, nationally, the US has had more capacity to harvest cattle than we’ve had cattle,” he said. “Anytime you have too much capacity, or ‘too much’ supply relative to what is needed in the market, that puts downward pressure on the margins in that sector. That’s not new.”
With not enough cattle to harvest, meatpacking plants have been taking measures to slow down operations, including reducing shifts or cutting Saturday workdays. If operations don’t pick up, plants eventually close.
But these closures won’t change the amount of beef that is packed and processed, since the country has enough infrastructure to take on the current supply, experts said. While it may slightly increase transportation costs for the cattle producers who are located close to the shuttered Tyson plants, it is not likely to affect the price of beef overall.
“This is just the latest example of the industry attempting to ‘right size’ in relation to current and future animal inventories,” Tonsor said.
Instead, the increase in the demand for beef has been a leading force in driving up prices. The quality of beef has improved significantly in the past several years, and consumers are responding favorably, Josh Maples, an agricultural economist at Mississippi State University said. The “general protein craze” seen across the country has also boosted meat consumption.
Beef demand has also increased notably compared with other meat products, he said. While the price of beef has outpaced inflation, jumping 9% over the last year, pork and chicken have both dropped in price, according to the Bureau of Labor Statistics.
This willingness to pay high prices for beef, however, is coming at a time when general household expenses are increasing for many Americans. The national average price of gas is about $1 more expensive than a year ago, according to AAA. Housing costs are also on the rise, according to the latest census data.
But the “income effect” is particularly significant when it comes to purchasing meat, Tonsor said, which means that if a household makes more money than they did a year before, meat demand tends to go up.
And the US is faced right now with a “K-shaped economy” – meaning high-income earners are thriving while those with fewer assets are facing greater strain, he added. It’s those higher-income earners that are maintaining a high demand for beef.
“There’s 10% to 20% of the US public that is doing better than a year ago, particularly those who have home ownership or stock market equity exposure. So the wealth effect is bigger for that group, and they aren’t batting an eye at a ribeye price,” Tonsor said.
Even though the recent Tyson closures aren’t likely to affect the price of beef immediately, the broader trend of beef facility closures could cause some difficulties for the industry down the line, Maples said, including a “trend towards less processing capacity moving forward”.
News of plant closures can also send “shock waves through the industry”, he added, which could deter cow producers from expanding in the future.
“That’s one thing that I’m concerned about, is how it affects producer decision making,” Maples said.
On Friday, Donald Trump announced a deal that would import 300,000 metric tons of beef into the US over the next three months without tariffs. The White House said Trump will formally sign an executive order for the deal within the next two weeks.
“We have a commitment that this beef will be sold at 25% below current market prices,” he wrote on Truth Social, without specifying which companies or importers were involved. “This deal will reduce prices for Americans while giving space for our Great American Beef Herd to grow again.”
But the National Cattlemen’s Beef Association, one of industry’s largest trade organizations, said it was “disappointed” by the announcement, writing that “flooding the market with government-subsidized, below-market beef is not the way to rebuild the American cattle herd”.
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