Lower fed cattle prices resulted from packing plant closures as employees there increasingly succumbed to the Covid-19 virus, but how long it will last is the $64,000 question.
Stephen Koontz, agricultural economist at Colorado State University, tackled this in the Livestock Marketing Information Center’s letter to Extension agents called In The Cattle Markets. This is an edited version of his comments about cattle and beef markets.
WORST-CASE SCENARIO
Early in March, cattle and beef markets began to price a worst-case scenario. Composite beef values rallied as retailers chased supplies, and fed cattle prices softened as animals were pulled forward from an already-large supply pool.
Wholesale margins widened considerably to the consternation of upstream and downstream market participants. But the concern was clearly about supply chain disruptions in slaughter and fabrication.
Now, one month later, market concerns have come to fruition as several North American beef plants are temporarily offline or operating at reduced speeds.
The first week of April, steer and heifer slaughter were close to 550,000 head. In the prior four weeks, slaughter was close to or more than 500,000 head a week. For the most recent week slaughter likely will be around 400,000 head or fewer.
Packer margin discussions are irrelevant when plants don’t run.
HOW LONG
How long reduced slaughter rates will continue is the next unknown in pricing. Boxed beef values gave back half of the late-March rally (although they are climbing now). And individual primal cut values are showing their relationship to at-home versus away-from-home consumption: end meats are strong and middle meats are weak.
Fed cattle prices continue to soften and the effect of delayed marketings will weigh on the market until summer. Talk about the normal spring rally in fed and feeder cattle will wait until next year.
Fed animal slaughter weights have started the seasonal decline, but the inventory of long-fed cattle is climbing. The Cattle on Feed Report Friday will show inventories as of the first of the month and flows from last month.
So, the uncertainty of pricing short-term needs and availability will be unclear for at least another month. Some certainty to the course of the Covid-19 pandemic will be needed to mitigate this risk.
RECORD LOWS COMING
Traders often think something like the record-low hog prices of 1998 can’t happen again, but perhaps now is the time. They also need to consider what happened in the oil markets Monday and Tuesday and consider that it could happen in cattle and beef markets. May crude oil closed at a negative $37.63 per barrel on Monday, after trading down to a negative $40, and opened at a negative $14 on Tuesday.
Apparently, there was a long position that needed to be liquidated… Regardless, the oil complex is trading below $15 in the nearby and below $30 for the rest of the year. This is not good news for the economy.
CATTLE, BEEF RECAP
Cash cattle trade this week was reported ranging from $95 to $105 per cwt on a live basis, steady to down $10 from last week. Dressed-basis trade took place at $148 to $160 per cwt, down $2 to $8.
The USDA choice cutout Thursday was up $8.54 per cwt at $284.29, while select was up $11.87 at $272.89. The choice/select spread narrowed to $11.40 from $14.73 with 97 loads of fabricated product sold into the spot market.
There were two steer and two heifer delivery notices tendered against the Apr futures contract on Thursday.
The CME Feeder Cattle index for the seven days ended Wednesday was $120.41 per cwt, up $0.75. This compares with Thursday’s Apr contract settlement of $119.42, up $0.95.