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A couple of weeks ago, we spoke about how the COVID-19 pandemic has emptied the shelves at our grocery stores…
And thrown our food supply chain into chaos.
Back then, I said there would be no food shortages. Rather, we may have to settle for food in different packaging, maybe less processed, and of a different variety.
Since then, the headlines and self-serving statements from the food industry have only gotten worse.
Lisa Lochridge, director of public affairs for the Florida Fruit and Vegetable Association, says the food supply chain is in “a disastrous situation.”
And in a full-page ad this past Sunday in the Washington Post, The New York Times, and the Arkansas Democrat-Gazette, John Tyson, the board chairman of meat processor Tyson Foods Inc. (TSN), warns “the food supply chain is breaking.”
And the statistics look scary, too. About one-third of U.S. pork processing capacity is down right now, and Tyson just closed its first large poultry plant.
“World’s Biggest Wheat Supply Dries Up When Some Want It Most,” according to a recent Bloomberg News headline.
Friends and even family are reaching out to me, worried about a pending food shortage. Who wouldn’t be after seeing these headlines?
And therein lies today’s Reality Gap, and another COVID-19 myth we need to dispel. Despite all appearances to the contrary, and all the posturing by food manufacturing companies, we are not about to run out of food.
Let me show you why – and how you can profit from this Reality Gap…
The Industry is Sounding the Alarm
When you see a fear-mongering headline, it’s always important to keep in the back of your mind who is saying things like this, and why. That will give you a clearer understanding of the motivation behind what’s actually being said and put you one step ahead of other traders and investors.
Take, for example, Tyson’s full-page ad. You may remember the company from the story a couple weeks ago, when we talked about how they had closed processing plants in three states due to the pandemic.
In their ad, Tyson says that “as pork, beef and chicken plants are being forced to close, even for short periods of time, millions of pounds of meat will disappear from the supply chain.”
“There will be limited supply of products” until Tyson reopens its plants.
Remember, Tyson runs meat processing facilities where beef, pork, and poultry get cut up, processed, and packaged for delivery to restaurants and grocery stores.
In short, Tyson and companies like it are the necessary processing middleman between a farmer’s live cow and the ground beef you buy at your grocery store.
Tyson’s ad even mentions those American farmers when it warns that “farmers across the nation simply will not have anywhere to sell their livestock to be processed.”
Given that it makes his own company sound like it’s struggling, you’re right to wonder why Tyson’s board chairman is saying this in a public forum – let alone paying to print full page ads.
The Warnings About Meat Shortages are a Distraction
The unfortunate truth is that the doomsday pronouncements are a smokescreen, a distraction. In reality, the company just wants more of what other industries are clamoring for – regulatory relief and government money.
Some claim Tyson has been slow to act to limit the impact of the pandemic on their operations, but I’ll challenge those Monday morning quarterbacks who look back in time and criticize those on the frontlines of food production from the safety of their keyboards.
It’s a very tough business in this time of pandemic. The way these meat processing plants are arranged, workers are standing shoulder-to-shoulder cutting, cleaning, and packaging the meat that comes down the conveyor belt.
It’s a perfect transmission ground for the coronavirus.
Now, Tyson is not alone in this. Their competitors face similar issues, and how they all handle this daunting problem is important to everyone who loves to eat beef, pork and poultry.
But Tyson is America’s largest meat processor, and second globally after Brazil’s JBS S.A. (JBSAY). As the largest in the country, they have taken the most heat and closed the most plants.
All in all, the largest meatpacking union in the U.S. says that more than 5,000 workers in the industry have been infected or exposed to the coronavirus, and 13 have died.
The large outbreaks at the company’s plants have forced Tyson to shut certain plants down until further notice, even when the company originally wanted to close them only for a week or two, as in Ohio.
By now sounding the alarm and publishing its ad, Tyson is trying to spread fear to garner support for their agenda. And based on the president’s recent executive order to keep meat processing plants open, the tactic has clearly been effective.
Tyson (and other meat processors) are acting in self-interest, and their lackluster efforts to protect workers is a cause for concern. Consider that Europe hasn’t closed a single meat processing plant despite being hit harder by the pandemic than most of America so far. It suggests that earlier and smarter action can prevent infections in these workplaces.
And here in the U.S., some plants have already reopened after cleanings and a rethinking of working conditions.
As for Tyson’s ad, perhaps its most important purpose is as a thinly veiled call for government help. The mention of U.S. farmers suggests as much.
Full-Page Ads are a Call for Government Help
After calls from food banks, farmers’ associations, and thinktanks that $1.32 billion worth of food could go to waste on farms because there are no buyers – even as food banks are running out of food – the Department of Agriculture (USDA) has stepped in.
The USDA is now starting to buy up surplus vegetables and fruits that have no other buyers. As meat plants close, government purchases of meat are likely to come next, and direct aid to farmers is also on the table. The agency is also helping food inspectors deal with the difficulty of working through a pandemic, many of whom have caught the virus at meat processing plants.
And while the USDA waited a month later than other federal departments to take action on the pandemic, what’s going to happen now is clear. Even where the supply chain has been slow to readjust to restaurant closures, or where the pandemic has closed food processors, food should no longer be going to waste.
There is no shortage in food supply. Nor is demand up. What we have is a supply chain that has been slow to adjust as restaurants, cruise ships, stadiums, and theme parks have closed, and people are buying more from grocery stores.
Any shortages of meat in grocery stores will be short-lived, if they happen at all. We may have to settle for less processed and deboned meat. For example, whole chickens instead of chicken thighs. But there will be no tidal wave of starvation.
Meat will be available, possibly with a few interruptions.
As for wheat, fruits, and vegetables, the situation is even better. The headlines about wheat mostly refer to Russia, the largest wheat exporter in the world.
The country had originally set a limit on how much wheat it would export until June. The quota was high enough to allow for a normal year’s worth of exports, but we did see some panic-buying earlier this month.
Effectively, wheat exports from Russia are now banned, just as the headlines say.
What they forget to mention is that the export ban ends in July, which is when the Russian wheat harvest begins.
And even ignoring that, the other main wheat exporters of the world are the U.S. and the European Union. Our wheat stockpiles are currently at 26.4 million tons. That’s more than the EU, Russia, and Canada combined, at 24.7 million tons.
So whatever happens in Russia, wheat will be on the shelves here in America. And we can likely fill in a large part of the gap from Russian supply.
Here in the U.S., we will not run out of food.
But with all that said, there’s a growing perception that we might. People are especially worried about meat shortages.
My hopes and prayers are that the meat processors take the necessary steps to protect the people that are working hard to provide food to homes and restaurants.
Still, the narrative of food shortages is very much alive. And that perception is why Beyond Meat Inc. (BYND), the plant-based meat-replacement company, soared 40% last week. It’s down about 9% off those highs today, but as this meat-shortage perception continues to gain traction, Beyond Meat could spike again.
It’s a good stock to buy on any pullbacks while this narrative persists.
But for dinner, you can have actual meat without having to worry it’ll be your last taste of it.
Great trading, stay safe out there, and God bless you,