Global economies are being roiled by coronavirus and cattle markets are no exception, said Oklahoma State University Agricultural Economist Derrell Peel.
Peel made his remarks in a newsletter to Extension Agents called Cow/Calf Corner.
The combination of broad market fears and their effects have taken a big toll on cattle markets, Peel said. One of the functions of futures markets is to anticipate the worst so these markets have taken the biggest hit.
Cash fed and feeder cattle markets have seen price pressure grow as uncertainty and fear expanded.
FUTURES DOWN SHARPLY
Live cattle futures are down more than 12% from levels prior to the first coronavirus news in January, Peel said. Cash fed cattle prices are down about 7.5% over the same period.
Feeder cattle futures dropped initially in January, then recovered significantly before dropping sharply in the past week, he said. Cash feeder cattle prices have tried to follow seasonal patterns with stocker prices increasing seasonally until last week when the weight of lower futures and growing uncertainty in the global Coronavirus situation took cash prices sharply lower.
BLACK SWAN TIME
The situation with the Coronavirus is another example of a “black swan” – rare, unforeseen events that have sudden, unexpected and dramatic effects on markets, Peel said. This situation, however, is different in a couple of fundamental ways from other such events in cattle markets, such as Tyson’s packing plant fire last year or the first BSE case in late 2003.
First, those events were within the beef industry whereas the Coronavirus is a much broader and varied set of effects in US and global economies, he said. This makes it much harder to assess the multitude of different things that are occurring or could occur.
Secondly, the packing plant fire and BSE happened as a single event at a specific point in time, making it relatively easier to figure out the timelines of recovery, Peel said. The current situation is not a single event; it is still developing and will end over a period of time at some point in the future.
Clearly, the uncertainty has not yet peaked, and the best we can hope for, from a market perspective, is that there will come a time when it appears the worst is over and we can see a path to a lengthy recovery in markets, he said.
OUTLOOK MUDDLED
Near term, Peel didn’t see good prospects of waiting this situation out for a sudden market recovery. Cattle producers who have to make marketing decisions in the next 30 to 60 days, and perhaps longer, should look for markets to remain weak with a decent prospect of getting weaker with brief bounces possible.
Longer term, he didn’t think markets were ready to change the overall outlook for the year, but the prospect is growing that expectations might have to be trimmed. Producers probably should not make dramatic changes to production and marketing plans just yet, but it wouldn’t hurt to think about it.
CATTLE, BEEF RECAP
Cash cattle traded last week at $115 to $119 per cwt on a live basis, down $1 to $4 from the previous week and at $186 to $187 on a dressed basis, down $3.
The USDA choice cutout Monday was up $1.23 per cwt at $206.53, while select was up $2.25 at $201.16. The choice/select spread narrowed to $5.37 from $6.39 with 62 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Friday was $133.52 per cwt, down $2.08 from the previous day. This compares with Monday’s Mar contract settlement of $133.72, up $2.45.