(Bloomberg) -- A fairly muted market reaction to President Donald Trump’s shock executive order to keep slaughterhouses open suggests the measure may not offer a quick fix to supply-chain woes.
U.S. hog and cattle futures were down Wednesday even after Trump invoked the Defense Production Act to keep processing plants operating and safeguard beef and pork supplies. The price declines are counter intuitive given the order aims to ease huge gluts of animals that have led to culling.
Gains in previous days hint at a case of “buy the rumor, sell the fact.” But producers and traders are also adopting a cautious approach. There are plenty of unanswered questions: How quickly can gear and testing be rolled out? How will unions and county authorities focused on containing outbreaks react? How much will stricter distancing measures slow production and when can workers who have fallen ill return? Some answers may come in a White House report later today.
“It will ease a lot the pressure for livestock producers, but we don’t anticipate this completely solving the problem,” said McGuireWoods Consulting Senior Vice President Ryan Bernstein, who also operates a family farm in North Dakota. “There will still be bottlenecks. And farmers are still going to have make difficult choices when it comes to depopulating.”
Unsurprisingly, meatpackers applauded the administration’s move while unions, advocacy groups and some opposition lawmakers described it as irresponsible. But equity investors were similarly circumspect, with shares in heavyweights Tyson Foods Inc (NYSE:TSN). and JBS SA (OTC:JBSAY) up less than 1%.
”The president’s executive order will only ensure that more workers get sick, jeopardizing lives, family’s income, communities, and of course, the country’s food supply chain,” Kim Cordova, President of Local 7 of the United Food and Commercial Workers International Union, which represents 3,000 workers at the JBS SA beef plant in Greeley, Colorado, said in a statement.
”This is not the Middle ages, and workers are not serfs—toiling at the whim of the management lords of the manor,” Cordova said.
Trump’s order is not only aimed at helping farmers find buyers for their animals, but also making sure nervous stay-at-home consumers are supplied with affordable beef and pork.
On Tuesday, wholesale American beef jumped 6% to a record $330.82 per 100 pounds, 62% up from a low in February, according to U.S. Department of Agriculture data. Pork prices gained 5.7% to the highest since November.
Because of the virus, meat slaughtering is 40% below where it needs to be to handle all of the animals coming to market, said Arlan Suderman, chief commodities economist at INTL FCStone in Kansas City.
“Processing plants were generally in favor of the executive order that would give them liability coverage when reopening,” Suderman said. “Yet, the order still does not solve the problem of employee absenteeism.”
At least 20 workers in meat and food processing have died and 6,500 have tested positive, been forced to self-quarantine due to coronavirus or seen another direct impact, according to the United Food and Commercial Workers International Union.
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