By James Mitchell
Cattle prices have been supported by supply and demand fundamentals but, they’ve had to navigate several disruptive events, including the announcement by Tyson Foods of the closure of their Lexington, Nebraska packing plant, another Texas beef plant shifting to a single full-capacity shift, rising detections of New World Screwworm in Mexico (NWS), and political comments about boosting beef imports. Fundamental factors and disruptions carry important implications for regional cattle prices.
The closure of the Lexington, Nebraska, beef plant and reduced shifts in Texas represent a decline in demand for fed cattle in those regions and, all else equal, place downward pressure on prices. These changes in processing capacity also negatively affect feeder cattle prices, though that impact is lagged. The first graph shows the relationship between Nebraska and Texas fed steers sold live FOB. The spread (green line) is calculated as the Nebraska steer price minus the Texas steer price. A narrowing of the spread reflects stronger prices in Texas, while a widening of the spread reflects stronger prices in Nebraska.
Leading up to the plant closure announcement, we observe a sharp narrowing of the spread, indicating stronger prices in Texas relative to Nebraska that appears to extend beyond typical seasonal patterns. Historically, seasonality in the spread reflects relatively stronger Nebraska prices during the summer months, with prices more closely aligned in the fall and winter. It is important to note that this period was already characterized by extreme market volatility related to trade policy proposals and retail beef prices. It is difficult to disentangle the effects of beef plant closures from other sources of bearish market news. The key point is that a lot has occurred over a short period, all of which has implications for regional fed cattle markets.
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