8-19-20 – The emergence of COVID-19 has created substantial challenges for all segments of the US meat supply chain, but especially for producers and consumers, the Federal Reserve Bank of Kansas City said in a report.
Beginning in April, outbreaks of COVID-19 at meatpacking plants led to significant disruptions and created issues of oversupply and low prices for livestock producers, the Bank said. These disruptions temporarily reduced meat production, which led to higher retail prices, making it more difficult for some households to purchase meat.
Consumers also shifted purchases of meat from foodservice to retail outlets, creating logistical challenges in the supply chain and putting additional upward pressure on wholesale and retail prices, the report said.
Meat production continued to lag 2019 levels even after plants reopened, and changing consumer patterns could have persistent effects on supply chains, the Bank said.
IMPLICATIONS
The livestock industry accounts for more than 50% of total farm revenues in the US, and cattle and hogs make up almost half of all livestock revenues.
Moreover, some regions are particularly concentrated in livestock and meat production, the report said. For example, the Midwest and Great Plains account for 65% of US cattle production.
Meatpacking plants generally are in areas where livestock production is more prevalent, the Bank said. Therefore, although developments in the meat supply chain are a national concern, the effects may be greater in higher-production areas.
The agricultural economy had been in a prolonged downturn prior to the pandemic, intensifying concerns of how COVID-19 and disruptions in the meat production could affect farm finances, the report said. In 2020, farm working capital was forecast to decline 16% from the previous year, which would be 72% less than in 2012.
Although farm solvency ratios have increased only modestly, liquidity has declined more considerably since 2012, highlighting weakening financial conditions among agricultural producers, the Bank said. Amid disruptions related to COVID-19, prices for cattle began to decline in February and, by the end of April, had declined more than 20%.
Prices for hogs were slightly stronger in February and March but also declined sharply in April, the report said.
Greater financial difficulties for livestock producers could add to stress in agricultural lending portfolios that already had increased before the pandemic, the Bank said. Prior to the outbreak, agricultural lenders in the Federal Reserve’s Tenth District already were more pessimistic about credit conditions in the livestock sector.
In the third quarter of 2019, about 40% of bankers already expected lower repayment rates for cow/calf and feedlot operations, the report said. Almost 20% of agricultural lenders also expected lower loan repayment rates on hog and dairy operations.
More disruptions could increase pressure on farm finances and farm lending portfolios moving forward, the Bank said.
CATTLE, BEEF RECAP
Fed cattle trading was reported in the Plains this week at $106 to $107 per cwt on a live basis, up $1 to $3 from last week. Dressed-basis trade was seen last week at $168 per cwt, up $4 to $5.
The USDA choice cutout Tuesday was up $3.60 per cwt at $220.86, while select was up $2.71 at $204.65. The choice/select spread widened to $16.21 from $15.32 with 121 loads of fabricated product sold into the spot market.
No steer or heifer contracts were tendered for delivery Tuesday at zero against the Aug live cattle futures contract. However, six heifer contracts were retendered at one.
The CME Feeder Cattle Index for the seven days ended Monday was at $142.63 per cwt, up $0.43. This compares with Tuesday’s Aug contract settlement of $143.22 per cwt, up $0.50.
IN OUR OPINION
–Despite bearish technical indicators, live cattle futures were supported Tuesday by strong beef spot markets. Beef prices have been a key component of the latest rally in live cattle futures prices, even though prices still are lower than they were a year ago.
–With all the news about COVID-19, African Swine Fever has taken a back seat, but Meatingplace reported some good news Tuesday. Reporter Julie Larson Bricher reported that the USDA’s Agricultural Research Service had identified a new way to isolate and detect the presence of live ASF virus. This is a big deal since tests can be made more available for faster detection and culling.
–US Agriculture Secretary Sonny Perdue has gone on record saying he thinks a second Coronavirus Food Assistance Program for farmers and ranchers could come soon, maybe within the next 30 days. This would be a big help to producers suffering from the pandemic’s ripple effects.