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Volatile uncertainty rules cattle markets

published: April 3rd 2020
by: Wes Ishmael

Traversing cattle and beef markets since the COVID-19 panic began is a lot like climbing on a green-broke horse for the first time and heading up a steep mountain trail; hopeful calm mixed with the expected, sudden breaking in two and no good place to bail out.
    The weekly five-area direct average fed steer price hovered just over $124/cwt. in January. It dropped to $108.84 the week ending Mar. 16, and then edged higher.
    “Cash fed cattle prices declined on broader concerns reflected in the Live Cattle futures, as well as the supply pressure of increased beef production. Year to date beef production is up 6.3% through mid-March,” explained Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his Mar. 30 market comments.
    Live Cattle futures on Feb. 14 closed at $112.00. They fell to $82.25 by Mar. 16. In between, limit-up and limit-down moves seemed to follow equity markets more closely than any fundamentals.
    Cash and futures prices for calves and feeder cattle came under similar pressure.
    May Feeder Cattle futures declined from a recent high of $144.37 on Feb. 19 to a low of $108.52 Mar. 18.
    “Cash feeder cattle prices followed futures, with the Oklahoma combined auction prices for 500-550 lb. No. 1 steers dropping from about $184/cwt. in the third week of February to a low near $152 one month later,” Peel says. “Prices for 750-800 lb. No. 1 steers declined from about $139/cwt. to $117 over the same period. The sharp drop in cash prices resulted in a sharp drop in feeder cattle marketings.”
    Few would be bold enough to call a market bottom, though, because no one in the world ever dealt with this particular pandemic.
    No one knows if and when it ultimately ends, whether it will make a comeback next year, if an effective vaccine will be developed or the ultimate domestic and global economic destruction along the way.
    On the other side of the ledger, wholesale beef prices screamed higher as the supply chain shifted from steep declines in food service demand to steep increases in retail grocery demand. Week to week on Mar. 20, Choice boxed beef cutout value was $45.61 higher at $253.75/cwt. Se-lect was $38.19 higher at $240.17.
    However, in a recent issue of In the Cattle Markets, Brenda Boetel, livestock economist at the University of Wisconsin—River Falls explained, “There is no evidence that consumers are eating more beef currently, and as such the demand will likely decrease significantly once the supply system catches up with the rush demand of the last few weeks.”
    “The current market situation creates significant disparities between the current supply and demand situation and expectations for coming supply and demand conditions. The result is a number of seeming paradoxes between different cash cattle and beef markets and between cash and futures markets,” Peel explains. “The different patterns of boxed beef, fed and feeder cattle prices in the past six weeks illustrates vividly the fact that these markets operate with very distinct dynamics. These dynamics have become very apparent as the distinction between the current market situation and expectations for future supply and demand conditions has widened.”
    Meanwhile, Peel points out beef, pork and poultry production was record large in the first quarter and is projected to be record large this year at 109.3 billion lbs., 4.3% more than last year. Beef production is projected to be 1.9% higher year over year at 27.7 billion lbs.
Industry losses measured in billions
    Glynn Tonsor, agricultural economist at Kansas State University estimates economic losses in the cattle industry, due to COVID-19, at $7.98 billion to $9.44 billion, representing two broad approaches for approximating damages for the U.S. cattle sector.
    Up front, Tonsor em-phasizes the estimates are not to be taken as final, precise estimates, but as a timely broad approximations to offer the industry context.
    Tonsor arrived at the $7.98 billion estimate by considering recent price estimates and cattle inventory.
    For prices, Tonsor utilized estimates updated in the middle of March by the Livestock Marketing Infor-mation Center (LMIC).
Compared to January:
    •LMIC reduced the first-quarter price estimate for fed cattle (1,400 lbs.) by $7 to $117/cwt.; $18 less in the second quarter to $103.50.
    •LMIC reduced the first-quarter price estimate for feeder cattle (750 lbs.) by $5 to $140.50/cwt.; $23.50 less in the second quarter to $124.50.
    •LMIC increased the first-quarter price estimate for calves (550 lbs.) by $4 to $170/cwt., but reduced second-quarter expectations by $20 to $149.50.
    You can find price estimates for the other quarters in Tonsor’s factsheet, found at agmanager.info.
    Bottom line, Tonsor estimates per-head damage for the year at $126 for fed cattle, $98 for feeder cattle, and $58 for calves.
    “Moving from damages per head to an economic impact estimate requires an inventory-impacted number,” Tonsor explains. “USDA NASS estimated the total beef cow inventory to be 31.32 million head in their January Cattle report. If we approximate that for every 100 cows we ultimately have 92 offspring sold, this would suggest, for a full calendar year, 28.81 million calves will be sold by the cow-calf sector. Proceeding forward, presuming 2% death loss rates for subsequent sectors, results in 28.24 million feeder cattle and 27.67 million fed cattle being sold, subsequently.”
    The other approach Tonsor took, which arrives at $9.44 billion in losses, considers declining Feeder Cattle and Live Cattle futures prices. Again, you can see Tonsor’s path to the calculation in the aforementioned factsheet.
    Congress enacted the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act Mar. 27, in order to provide 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.
    “The passage of the Coronavirus response legislation will provide much needed relief to Americans across this country, especially workers and small-business owners who have been impacted by COVID-19,” said Agriculture Secretary, Sonny Perdue. “At USDA we will deliver relief assistance to farmers and ranchers as quickly as possible.”
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