The COVID-19 "Meat Shortage" Is a Corporate Cash Grab; Here's How to Play It

I recently shared a mobile phone snap with my Straight-Up Profits readers. I was on a shopping trip here in my home state of Delaware...

At the time, I said there would be no food shortages, but that we'd probably have to settle for different food in different packaging - maybe less processed, maybe of a different variety.

Since then, the headlines about and 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 an ad - a full page, no less, this past Sunday in The Washington Post, The New York Times, and The Arkansas Democrat-Gazette, John Tyson, the board chair of meat processor Tyson Foods Inc. (NYSE: TSN), warns "the food supply chain is breaking."

And the statistics look scary, too. About 33% 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," declares 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?

Well, I'm not - and you don't have to be, either. Because this situation is a classic Reality Gap - and another COVID-19 myth that needs handling.

Not only are we not about to run out of food, but there's a very profitable setup unfolding that could put a little extra something on your family table.[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

There's an All-Out Media Blitz Underway

When you take in a fearmongering 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 few weeks ago, when we talked about how it had closed processing plants in three states due to the pandemic.

In its 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 link 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."

Sounds dire!

Given that it makes his own company sound like it's struggling, you're right to wonder why Tyson's board chair is saying this in a public forum - let alone paying to print full-page ads.

The unfortunate truth is that the doomsday pronouncement is a smoke screen. In reality, the company just wants more of what other industries are clamoring for: regulatory relief and government money.

With all of that said, there are some unique challenges facing the meat industry; it's just not what you're being told.

The Situation on the Ground at Tyson

Some claim Tyson has been slow to act to limit the impact of the pandemic on its operations and, without wanting to Monday-morning quarterback, there may be some truth to those claims.

Tyson (and other meat processors) are acting in self-interest, and their less-than-ardent commitment to protecting 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 United States, some plants have already reopened after cleanings and a rethinking of working conditions.

Nevertheless, 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. Its competitors face similar problems, 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, second globally after Brazil's JBS S.A. (OTCMKTS: JBSAY). As the largest in the country, it has taken the most heat and closed the most plants.

All in all, the largest meatpacking union in the United States 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 particular plants down until further notice, even when the company originally wanted to close them only for a week or two, as in Ohio.

In that context, it's easy to see why Tyson and others are making this play...

Full-Page Ads: a Call for Government Help

In sounding an alarm, and striking an ever grimmer tone, Tyson is trying to spread fear to garner public (read: congressional) support for its agenda. And based on the president's recent executive order to keep meat processing plants open, the tactic has clearly been effective.

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.

After calls from food banks, farmers' associations, and think tanks 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 U.S. 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 longer 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. Indeed, in some places, it's clear that there's too much food. What we do 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.

Russian Supply Worries Are Overblown, Too

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 United States 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 and wheat-derived products 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 United States, we will not run out of food.

However, it's undeniable there's a growing perception that we might. People are especially worried about meat shortages. And 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. (NASDAQ: BYND), the plant-based meat-replacement company, soared 40% last week. It's down about 9% off those highs today. 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.

And in the meantime, be sure to check out my latest presentation...

You see, every day, an average of 400,000 secret transactions take place in these dark corners of the market. But up until now, it's been impossible for ordinary folks to take advantage.

Luckily, I'm exposing a rare glimpse at the billions of dollars that change hands every day... and on today at 10 a.m. (ET), you get to see it in real time. Here's how...

Follow Money Morning onFacebook and Twitter.

About the Author

D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.

Read full bio