Meat supply chain still adjusting to pandemic
The market upheaval of the past year created opportunities for smaller meat processors but also drove large processors and retailers to fine-tune their operations as they learned to retool on the fly in response to sudden changes.
Businesses from across the meat-marketing spectrum participated in this week’s American Farm Bureau Federation convention, which was held virtually and offered free to anyone who registered.
The challenges were formidable and the successes bittersweet for Juan Romas, who opened Fort Worth Meat Packers just weeks before the country went into the initial pandemic lockdown.
Romas represents the sixth generation of a ranching family from southeastern New Mexico. After working in the family business and as an attorney, he decided to reopen the last remaining packing facility in the Fort Worth Stockyards.
His motivation was “seeing things out to the finish” — a desire to see the cattle he raised and fed transformed into a final product ready for the marketplace.
Fort Worth Meat Packers started with fewer than 30 employees but now employs 200 and processes over 1,000 beef cattle a week, along with 1,000 smaller animals such as pigs, goats and lambs. The facility operates two separate kill floors, each with a dedicated processing room.
Romas reflected on the combination of excitement and fear that accompanied his early February opening. As the pandemic’s initial impacts hit home, shortages of meat drew many new and unexpected customers to the business, but certain items, such as middle meats that typically go to restaurants, became very difficult to sell.
“It was a blessing and a curse,” he said of the pandemic.
“The meat shortage allowed us to grow even though it was a sad time as a country,” he added. “One of the things most rewarding for me was being able to provide employment during difficult times. We were growing during March and April, when other businesses were shutting down.”
As soon as the shortages ended, however, some of his buyers went elsewhere, in search of higher volumes or lower prices than he could deliver. Direct marketers also began to process fewer cattle for direct sale.
Those gyrations were just part of a disruptive year that kept all segments of the industry scrambling.
According to AFBF economist Michael Nepvuex, who presented a cattle market outlook during a separate workshop, food service sales are still running 20 percent behind a year ago, although they have recovered since last spring. Grocery store sales, on the other hand, remain above pre-pandemic levels.
Panic buying drove retail food prices higher back in May, with an average markup of 20 percent for eggs, 17 percent for ground beef, 15 percent for pork chops and 11 percent for potatoes, he said.
Producers were largely left out of the sudden price surge. But reports of packers making $500 or more a head gave many a false sense of how much opportunity exists in the packing sector or in retaining ownership, noted Kate Miller, a third-generation cattle producer who also works as chief operating officer for Fort Worth Meat Packers.
Known as “The Meat Lady” on social media, she offered a very thorough analysis of costs and net margins and emphasized that ranchers often underestimate the enormous amount of working capital and cash flow required to run a meat plant.
Laws require packers to pay for cattle within 48 hours of receiving them, unless other terms are set up, whereas no such law exists for companies that purchase meat from a packer, she said. Keeping meat in cold storage is something packers avoid at all costs, she added, leaving it to food service and retail distributors to invest in and handle that aspect of the business.
Ramos said being in the packing business had given him a new perspective as a cattle producer.
“If I’m looking at $1.10 to $1.12 live prices, as a producer that seems pretty low, but as a packer, we’re having a hard time having a margin at what the cut-out price is versus what the live price is,” he said.
Opportunities to make money are tempered by market volatility, high capital investment and high demand on cash flow, which make risk management essential, he said.
“You have to make sure you’re getting paid on the meat you sell quickly,” he said.
He suggested one way to start out was by doing mostly custom processing, a fee-based service, and then gradually take a position on more cattle to sell as beef.
Large packers and retailers, meanwhile, are not sitting idly by, but are using the pandemic as motivation to find ways to make their businesses more efficient. Packer and retailer representatives talked in a separate session about the wild ride of the past year and what they’ve done to adjust.
Demand for things like fresh mushrooms, herbs and affordable beef cuts demonstrate a renewed interest in cooking and a willingness to explore different foods.
“One product that was really intriguing to us was oxtails,” said Jarrod Gillig, president of business operations and supply chain for Cargill Protein North America, based in
Wichita. “That’s not historically a high demand product, but it was in demand across the country. We also saw a spike in deli demand and ready-to-eat meals.”
Processors and retailers had been moving to streamline and eliminate packaging but suddenly had to switch gears.
In the food service segment, for example, breakfasts are no longer served buffet-style, but now require individual portion-size packaging, Gillig observed.
Martha Hilton, vice president of produce and floral for Wegmans Food Markets, a 100-store chain serving the northeast and mid-Atlantic region, said bulk sales of fresh produce took a hit.
“Bulk isn’t as a appealing now, so we are looking for packaging that is compostable and biodegradable,” she said. “I don’t see that changing in the immediate future.”
Both of them said much of what had changed during the pandemic wasn’t obvious to customers but involved back-of-the-house operations related to storage, inventory and data management.
All of the businesses, whether large or small, gave credit to essential food supply workers for showing enormous determination, adaptability and loyalty throughout the pandemic.
“We had employees trained as chefs who were stocking frozen foods,” Hilton said. “I just hope consumers (when they shop now) will slow down and think about, 'How did that item get here?'”
One of Gillig’s favorite memories was of a group of employees at Cargill’s plant in Friona, Texas, who showed up to work in Rosie the Riveter-style T-shirts.
“That still gives me chills,” he said. “They had such pride in what they did. I hope consumers won’t underestimate what they did.”