What a week, news of the coronavirus has decimated the market with cash fed cattle losing a full $5 in about three days. Futures traders wanted out of the market fast and they left a mess for the cash markets to worry about. All classes of cattle lost big money this week. This kind of reminds me of the Tyson fire last August when futures had two days of limit-down trading, but things recovered about three weeks later.
We sure didn’t need this coronavirus to pop up now, when the industry has lots of fed cattle in the pipeline. I would imagine the market will look a lot different by the end of March when packers will be filling orders for grilling season.
It seems like the big bottleneck is in China where this whole episode started. They tried to blow it off and keep it quiet, but it got out of control and it could have been controlled quickly. Can you imagine some town in China that most of us never heard of with a population of 11 million? How do you quarantine a city like that? Now this virus is a global threat to the economy. It seems that we are having these deadly viruses show up more often.
The Chinese’ answer was to lock down the country and keep large groups of people away from each other. They shut down business and shut down the shipping ports. We’ve heard a lot of stories where meat has been shipped there and there is no one to unload the boat. Those chilled containers can’t stay cool forever. Then China hasn’t really started buying beef from us yet.
So why should the markets take such a big hit? It perplexes me that professional traders always push the panic button. You would think these folks would stay calm. But cattle feeders were willing sellers at lower money and a lot of cattle sold early in the week.
The Daily livestock Report said, “The CME commitment of traders’ report for the week ending Jan. 21 showed managed money held a big net long position. The outbreak of the coronavirus in China and rising risks for beef demand have caused many spec funds to quickly pivot and managed money net longs for the week ending Feb. 18 were 30,312 contracts, down from 85,312 contracts on Jan. 21. It would not be a big stretch to think the net long position has been reduced further since then, especially following the selloff in equities the past two days.”
The Cattle on Feed report said there were only 2 percent more cattle than last year, and most analysts felt that was manageable. Front-end supplies weren’t any bigger than last year. Cattle on feed for more than 150 days is 10 percent lower than a year ago and the March number is 8 percent lower than last year, but carcass weights have shot through the roof. Average carcass weight is 881 pounds, 18 pounds higher than last year. That’s a lot of extra beef on the market.
No one seems to know where this thing is going. It is reported that infections have slowed down in China and people are recovering. Every health agency worldwide is doing all they can, but little pockets of infections keep popping up around the world. Markets have failed because of uncertainty—the market’s worst friend.
Ports are starting to ease up in China and containers are starting to move. One market analyst said that the leadership in China can’t afford to allow food shortages or rapidly rising food costs. They will want to avoid civil unrest at all costs. The negative price movement for commodities could give way to increased exports. Pork sales to China have been robust and poultry should come next, then beef. Can you imagine 1.4 billion people in China getting hungry and angry at the government?
My guess is the world will have a better handle on the virus shortly and markets will start to recover. The million-dollar question that no one can answer is, “when?” Folks still need to eat, and global supply chains will ease up. I just read a story that Starbucks has reopened 90 percent of their Chinese stores and factories are opening again in China. But then again you never really know about China. — PETE CROW
