Solid bull sales anchor an otherwise volatile market
Volatility seems to be the answer regardless of the question when it comes to prices. Derrell Peel, Oklahoma State University’s Breedlove professor of agribusiness and Extension livestock marketing specialist said while the cattle industry has weathered a number of so-called black swan events, the COVID-19 situation is unlike any other whereas the event occurred and was quickly followed by a recovery process rather than an ever-evolving wait for the unknown peak. For cattle producers watching the futures and cash markets, this comes as no surprise.
With restaurants demand down from 70 to 90 percent, Peel said the demand was shifted to the retail grocery side, which has seen a surge. He said items for those outlets come from different supply chains and can’t just be easily shifted from one side to the other. According to Jayson Lusk, consumers spent 61 percent more at the grocery store the week ending March 22 than the same week a year prior. Lusk is an economist, distinguished professor and department head in the Department of Agricultural Economics at Purdue University.
One point Peel has emphasized throughout the virus situation to both consumers and producers is that this has been a tremendous challenge for the food supply chain but is not a matter of not having enough meat. It is quite the opposite with record beef, pork and poultry production this year.
Labor shortages loom large as concern grows about absenteeism at processing plants due to COVID-19. At press time, one Cargill beef plant in Pennsylvania that processes primarily cull cows is on restricted production, Tyson Foods suspended operations at a pork plant in Columbus Junction, Iowa, and National Beef Packing stopped slaughtering cattle at another Iowa plant, though changes happen quickly.
Peel said the uncertainty over closures is playing a role in market volatility, but slaughter numbers were higher with Saturday kills to meet retail demand.
Feeder cattle prices have seen significant drops and volatility with sharply lower auction volumes for stockers and feeders. However, spring bull sales have been remarkably strong. Dennis Ginkins, The Tri-State Livestock News general manager of sales and marketing, said there have been fewer people in the seats at the bull sales he has attended and served as a ringman but prices have been excellent. Ginkins attributes some of that to the cultural importance of bull sales across the fly over states, allowing people to socialize over a meal in addition to conducting vitally important business. Willie Altenburg said his March 21 bull sale at Centennial Livestock Auction in Fort Collins, Colo., offered online bidding. In 2019, he sold 100 bulls with an average of $4,050 and in 2020, he sold 122 bulls at an average of $4,338. In southeastern Colorado, John Campbell said the bull sales have been strong and there have been a number of replacement heifers sold. He said buyers and sellers seem to think the current volatility will be water under the bridge when many classes of cattle enter the markets in the fall.
Input markets, he said, are unlikely to reach the levels estimated in last week’s USDA planting estimate report but will likely increase from last year. Feed supplies look adequate at this point with last year’s carry over and the current crop. He said he anticipates a stock to use ratio of corn to be at a level not seen since the 1990s. Forage conditions, albeit early in the year, appear to be reasonably good nationally, he said.
Lower energy costs will spell lower fuel and fertilizer prices. Successful Farming reported last week that anhydrous ammonia, DAP, and potash prices are at their lowest in a decade, a savings of about $20 per acre compared to spring of 2019.
Peel said the recovery is yet to be seen but there is evidence to support the possibility of a V-shaped recession with a bottom and sharp recovery. Being cautionary, he warned recovery may not be seen until the year’s fourth quarter.
“We’ve significantly changed the trajectory of the U.S. economy for this year,” he said. “That, in turn, changes our expectations. Obviously, what we were expecting even knowing we had record meat supplies coming into the year for 2020 but with the strength of domestic and international demand, we were fairly optimistic with the cattle markets. That’s much more questionable now given what has happened.”
February trade reports show a 45.5 percent increase in pork exports from February 2019, led by China and followed by Mexico and Japan. Broiler exports were up 6 percent on a year over year basis with beef exports up 21 percent. Beef imports in February were up about 7 percent with imports from Brazil, Australia and New Zealand down. United States Meat Export Federation Chair Cevin Jones said he expects a double-digit slowdown in Australian beef production and exports with beef demand remaining strong, especially in strengthening markets like Japan and China. Peel’s overall estimate is an increase in beef exports of about 7 percent and a decrease in imports of about 6 percent.
Lusk maintains that the loss of restaurant sales, decreased incomes for consumers from a likely recession, and export markets taking hits from COVID-19 suggest downward price movements in cattle and hog markets may continue even if wholesale prices rebound in the event of processing capacity disruptions due to the virus. ❖
— Gabel is an assistant editor and reporter for The Fence Post. She can be reached at firstname.lastname@example.org or (970) 768-0024.