Fed cattle prices, like most futures markets, have been on a rollercoaster due to unknowns surrounding the COVID-19, the new coronavirus, outbreak. But part of the cattle price drop point to supply and demand economics rather than panic, according to a Texas A&M AgriLife Extension Service expert.
David Anderson, AgriLife Extension economist, said fed and feeder cattle futures market prices have been volatile along with other markets as buyers and sellers navigate a future with added uncertainty.
Fed cattle prices were $112.80 per hundredweight (cwt) during the first week of March compared to $127.98 cwt at the same time last year, he said.
Anderson said the futures markets have been extremely volatile due to coronavirus. But he’s unsure how much of the price rollercoaster can be attributed to fears about the virus’ impact.
Live cattle future prices fell enough to halt trading on March 9, he said. But prices rebounded March 10 above what was lost, and trading was halted because prices hit the price ceiling for the day.
“I still think it’s an overreaction,” he said. “I told people I thought futures were too high in January. Some of this activity doesn’t seem like a surprise. The key is that markets always overreact whether it’s up or down.”
Rumor versus fact
Anderson said it’s understood that rumors and the unknown can affect trading and cause people to sell or buy. But when the facts emerge the market adjusts to what is known.
One known Anderson said can explain lower fed cattle prices beyond the turmoil caused by coronavirus is increased supplies. The U.S. has produced 5.5 percent more beef than last year at this time.
He said high supplies aren’t due to more cattle but rather higher weights per head. Steers are weighing 20-30 pounds more per head than last year.
March is also typically a low point for annual feeder cattle prices due to large numbers coming off wheat grazing over the winter, he said.
“Good weather and no real major storms in the Panhandle make for good daily gains,” he said. “Slightly more animals are going to packing plants than a year ago. It’s not a problem where beef is not moving to and from packing plants, it’s that weights are up. And we’re seeing higher quality gradings of more Choice cuts, which also drives down Choice beef prices.”
“Despite the turmoil surrounding coronavirus, all the disruptions to the supply chain and low prices, I think the long term is positive for cattle prices.”
Anderson said competition from other protein sources like pork and chicken also contribute to lower fed beef cattle prices.
“We’re still producing record amounts of chicken and pork,” he said. “That’s a lot of competition for the consumer’s stomach.”
Good expectations
Meanwhile, despite the disruption to global trade, export demand has been better than last year, he said. Pork exports are up mostly due to China, and beef exports there increased slightly.
Despite lower prices for fed cattle, Anderson said calf prices remained steady compared to last year. And there are signs that make him optimistic for cattle producers in 2020.
Anderson said he expects beef production to decrease in the second half of 2020. He also expects there to be fewer calves available in the fall amid a reduced overall herd.
The expectation for a record corn crop also adds the positive of likely lower feed prices, he said.
“Despite the turmoil surrounding coronavirus, all the disruptions to the supply chain and low prices, I think the long term is positive for cattle prices.” — Texas A&M AgriLife Extension
