It’s hard not to hear about the coronavirus these past few weeks. The media has hyped it into a social frenzy. The World Health Organization declared it a pandemic last week. We have watched all commodity and equity markets drop rapidly without time to do any rational thinking. Panic, you bet, people getting infected daily and folks are dying. The last time the country felt this kind of despair was after 9-11, a life-changing event.
What do we do in agriculture? Folks still must eat, and we need to keep on producing and distributing food. That’s one great thing about America—we have a safe, clean food distribution network. Think about it, we produce it, the processors turn it into cuts of beef or pork. We have an amazing trucking system; a load of farm packed produce goes from California to New York in two to three days.
This coronavirus won’t stop food distribution. Restaurants and food service may have some real financial risk. I don’t think you’ll see the local supermarket close; people got to eat. Supermarkets in the Denver area have been getting cleared out of food stuffs the past few days and people are starting to panic, hoarding supplies to weather the storm. It will end.
We have all been watching this cattle market in a tailspin. Futures markets are doing all the price discovery on fed cattle prices, cash traders are helpless. This is one of those times that if you were hedged on your cattle you were safe. A put option on your fall feeder cattle would have been a good thing. You might want to learn more about it. Futures and options are good tools to manage your risk. It is worth spending some time to learn about these tools.
When we started this downturn three weeks ago August feeder cattle contracts were at $145. On Friday, March 13, they were down to $127, down $18 in three weeks. There’s not much of a hedge anymore. We must watch the board daily to see if a hedging opportunity exists. When it does you need to decide quickly because a good hedge doesn’t last long, maybe a day or two, because those hedge-minded cattlemen have already taken advantage of it.
Now we have travel bans everywhere; people can’t move around. It appears the best defense to this threat is quarantine. Major events are being canceled left and right, employees who can work from home are being asked to do so. It would be interesting to know if anyone who attended the National Cattlemen’s Beef Association convention in San Antonio has come down with the coronavirus.
It seems like the best defense is to stay away from people, which most people in agriculture don’t have much of a problem with. So, I would expect most in agriculture will be fine. Then if you’ve been overseas in the last two months, get tested. I understand there is a drive-through testing station in the Denver area.
It appears that we can squarely blame this episode on the Chinese. The story I’ve heard is this is an animal virus that infected a human in Wuhan from a wet market. Apparently consuming exotic wild animals is common and strains of the coronavirus is common in animals, including cattle. I’ve heard the Chinese will eat just about anything. Perhaps they need to upgrade their food safety system.
The last major pandemics include HIV/AIDS in 2012, which started in the Congo, Africa. Some 36 million people died from it. Then there was the Hong Kong flu in 1968, which claimed more than a million people—500,000 in Hong Kong alone—representing 15 percent of the city’s population. Before that, there was the Spanish flu in 1918 which took out 30-50 million people.
One common element from all of these pandemics is that they were associated with zoonotic animal diseases, mostly rodents. Good personal hygiene seems to be the best defense from these diseases. So, wash your hands and face often and get all the rodents out of the house and back yard…which is pretty much impossible on farms and ranches.
This thing will pass in time and we’re in the right country with the right resources to minimize impact. We have the technology to deal with the solution which we didn’t have in 1918 when the Spanish flu struck the world. Be cautious and stay clean. — PETE CROW
