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Weighing The Market

published: April 17th 2020
by: Wes Ishmael

COVID-19 market uncertainty grows

“Volatile doesn't seem a strong enough word to describe the situation anymore, as daily limit up and down moves at the CME are almost expected,” said the Agricultural Marketing Service (AMS) reporter on hand for the Green City Livestock Auction in Missouri, the first week of April. “Those big moves take all the confidence out of a cash market and make it difficult for producers to decide when to turn loose as well as for buyers to figure what one is worth.”
    That description goes a long way in describing the current atmosphere in cattle markets as they and the U.S. economy grapple with COVID-19.
    “In three weeks, the price of the May Feeder Cattle contract declined from $135 to less than $110/cwt. It then took just five days for the contract price to jump back over $130. The sudden increase in price was then followed by eight days of struggling prices that actually saw some contracts trade below $105 at the first of this week,” explained Andrew P. Griffith, agricultural economist at the Univer-sity of Tennessee, in his mid-April weekly market comments. “The market price will likely continue this rollercoaster ride, but it will not be a fun one for most participants. The plan for most producers should be to remain calm and keep doing what is being done. There is no reason to have any kneejerk reactions at this time.”
    Keep in mind, Griffith’s comments came just as it was becoming clear that packing plant capacity was starting to be constrained by COVID-19 infections at various facilities.
    Smithfield Foods, Inc. announced Apr. 12 that its Sioux Falls, South Dakota facility--one of the largest pork processing facilities in the U.S.--would remain closed until further notice.
    “The closure of this facility, combined with a growing list of other protein plants that have shuttered across our industry, is pushing our country perilously close to the edge in terms of our meat supply,” explained Kenneth M. Sullivan, Smithfield president and CEO.
    Earlier that same week, Noel White, Tyson Foods CEO explained, “Our meat and poultry plants are experiencing varying levels of production impact, due to the planned implementation of additional worker safety precautions and worker absenteeism.
    At the time, JBS has announced it is closing its beef packing plant in Greeley, Colorado until Apr. 24, in order to deep clean facilities and screen new workers.
    “Slaughter levels were lower than in recent weeks as several facilities have been affected by worker attendance. Cattle slaughter under federal inspection was estimated at 536,000 head for the week, 90,000 less than the previous week and 103,000 less than a year ago,” according to AMS the week ending Apr. 10. “Last week’s negotiated purchases of slaughter steers and heifers nationwide (28,923 head) was the second smallest volume reported since mandatory reporting started in 2001,” For the week, negotiated cash fed cattle prices in the Southern Plains were $7 lower at $105/cwt.
    “Feedlots could be faced with slowing fed cattle finishing or holding animals on maintenance rations until slaughter can be scheduled. Cull cows and bulls may have to be held in dry lots or pastures until slaughter capacity becomes available,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his Apr. 13 market comments. “A slowdown in feedlot marketings could result in slower feedlot placements and more feeder cattle staying on pasture. The beef industry ultimately has considerable flexibility to adjust cattle flows and timing. These responses would increase cost of production at all levels but probably would not be as severe as might result from similar disruption in pork and poultry industries where bottlenecks and backlogs are much more acute. The next few weeks could be an unparalleled challenge for livestock producers, processors and consumers.”
    “Unfortunately, COVID-19 cases are now ubiquitous across our country. The virus is afflicting communities everywhere. The agriculture and food sectors have not been im-mune,” Sullivan explained. “Numerous plants across the country have COVID-19 positive employees. We have continued to run our facilities for one reason: to sustain our nation’s food supply during this pandemic. We believe it is our obligation to help feed the country, now more than ever. We have a stark choice as a nation: we are either going to produce food or not, even in the face of COVID-19.”
    Agriculture as a whole, and the cattle and beef industries are considered essential critical U.S. infrastructures. So, one would think the stark choice Sullivan mentions should be clear.
Glimmers in the shadows
    In the meantime, many cow-calf producers positioned to do so are delaying marketing, buying more time to get a sense of where and when all of this unfolds.
    There are some cattle market positives moving forward.
    National cowherd expansion ended last year, according to the Jan. 1 USDA cattle inventory numbers. Increased beef cow slaughter so far this year suggests that trend will continue.
    Even though Japan and South Korea were already dealing with COVID-19, U.S. beef exports to those countries were higher year over year for the first two months of 2020.
    In fact, total U.S. beef exports were on a record pace through the first two months of 2020, up 10% in volume and 11% in value at $1.35 billion, according to data released by USDA and compiled by the U.S. Meat Export Federation.
    Forage appears to be abundant across much of the nation heading into summer. The same can be said of feed.
    USDA estimated corn planted area for all purposes in 2020 at 97.0 million acres, which would be 8% more than last year. That’s according to USDA’s Pros-pective Plantings report. The season-average marketing weighted corn price received by producers for 2019-20 was lowered 20¢ to $3.60/bu., in the April World Agricultural Supply and Demand Estimates.
    Finally, the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act provides emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic. It contains $9.5 billion in assistance for agriculture producers who have been impacted by COVID-19, along with a $14 billion replenishment to the Com-modity Credit Corpora-tion. Ultimately, the liquidity it provides should help the economy recover.

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