Beef Price Spread Relationship with Processing Capacity Utilization

When US cattle slaughter facilities temporarily shut down during COVID-19, the live cattle to wholesale boxed beef price spread, which is the difference between the value of live cattle price and wholesale boxed beef value, reached record highs. The processing disruptions caused the fed cattle price to decline and beef price to increase. The price spread had a similar, but less extreme, reaction when beef processing capacity was temporarily shut down after the Tyson beef-packing plant fire in August 2019. These events led to questions regarding the interaction of the number of cattle slaughtered nationally each week and the price spread. Now that cattle numbers are declining and packing capacity is increasing questions about capacity utilization and the price spread remain.  

In a recent article, my co-authors and I investigate the dynamic relationship between industry-level weekly (Monday through Friday) and Saturday operational slaughter capacity utilization with the live cattle to box beef price spread. Below are the highlights of the journal publication and our estimates of weekly and Saturday slaughter capacity utilization. 

Key results from our study:

  • We find bidirectional causality between weekly slaughter capacity utilization, Saturday slaughter capacity utilization, and the live cattle to box beef price spread over the entire study period (2010-2021). In plain English, this means that the number of cattle processed on Saturdays affects the price spread and vice versa.  However, additional analysis indicates these causal relationships don’t always occur.
  • An increase in the price spread in the previous week positively impacts the number of cattle processed nationally on Saturday in most weeks.  That result makes a lot of intuitive economic sense because the larger spread implies more profits which is the market signal to produce more beef.  This might 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.
  • This study does not find statistical evidence to support the notion that weekly, or Saturday slaughter capacity utilization is used by the beef packers to control the price spread.

Figure 1. Weekly (Monday through Friday) and Saturday Operational Cattle Slaughter Capacity Utilization from 2010 to 2021 in the United States

Paper Citation

Martinez, C., Li, P., Boyer, C. N., Yu, T. E., & Maples, J. G. (2023). Beef price spread relationship with processing capacity utilization. Journal of the Agricultural and Applied Economics Association.

Martinez, Charles, Pengzhen Li, Christopher N. Boyer, T. Edward Yu, and Joshua G. Maples. “Beef Price Spread Relationship with Processing Capacity Utilization.Southern Ag Today 3(10.2). March 7, 2023. Permalink