Investigating Beef Price Spread Relationship With Processing Capacity Utilization

Apr 06, 2023

Researchers from the University of Tennessee Institute of Agriculture and Mississippi State University teamed up to investigate the interaction of national slaughter and price spread—the difference between the value of live cattle price and wholesale boxed beef—that ensued following temporary closures of beef processing facilities in recent years.

"The beef price spread and slaughter numbers have historically been used as indicators of potential packer profitability, and some have questioned if packer slaughter is used to control the price spread," said Charley Martinez, project lead and director of the UT Center of Farm Management. "Our study analyzes causal relationships between price spread and a weekly and Saturday slaughter capacity utilization measurement."

The research found that while weekly and Saturday slaughter capacity utilization directly affect live cattle-to-box beef spread and vice versa, these causal relationships are not happening in all instances. The study shows that an increase in the price spread in the previous week positively impacts national Saturday slaughter capacity utilization when price spread for most of the timeframe analyzed, 2010-2021.

This could suggest Saturday slaughter is more than a catch-up day of processing but could also be a strategy to increase slaughter when the price spread is increasing; however, further analysis found no statistical evidence of this occurring during the timeframe analyzed.

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