Morgan Stanley expects the U.S. beef spread to narrow after the JBS Greeley plant resumes operations.

Investing.com – According to a news release published by labor union UFCW7, workers at JBS’s beef processing plant in Greeley, Colorado have agreed to end a three-week strike and resume operations. Previously, the company said it would restart contract negotiations.

Employees are expected to return to work on Tuesday, while negotiations between JBS and workers’ representatives are scheduled to resume on Wednesday and Thursday. A representative for JBS said the company has not revisited its initial offer and plans to present it as its final proposal to the union.

Morgan Stanley analysts expect that as JBS ramps up production capacity in Greeley, the U.S. beef price spread will see some pullback. The outcome will ultimately depend on the results of negotiations later this week.

Since the mid-February point when it bottomed at minus $140 per head, the U.S. beef price spread has improved to about $390 per head, up from roughly $250 per head last week. This improvement is partly due to more favorable seasonal factors, and also because producers reduced slaughter rates in response to negative profit margins in January and February (average beef price spread of minus $45 per head).

Morgan Stanley believes the most important factor behind the improvement in profitability is the strike at JBS’s Greeley plant. The facility processes about 5,000 head of cattle per day, or roughly 5% of the industry’s total. The strike may have affected cattle prices by lowering slaughter demand, while beef cut prices rose due to reduced beef supply.

The analysts expect the plant’s capacity utilization to begin increasing gradually, which should lead to some further pullback in the U.S. beef price spread in the near term. This would negatively affect the short-term profit margins of both JBS and Marfrig.

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