It was a volatile week in the futures markets with cattle contracts taking wide $2 swings every day. Fears over the coronavirus may persist for a while simply because nobody knows anything about it. Some light fed cash trade occurred Wednesday at $113 live and $182 dressed on only 43,000 head. The Fed Cattle Exchange tried to establish the market at $114 but failed to get any takers.
Cattle feeders are looking at those deferred summer contracts trading at $102-103 and finding it hard to justify buying replacement feeder cattle. Feeder cattle markets are down in the country and volume has slowed as well. Oklahoma City’s National Stockyards, one of the largest in the country, had only 6,000 head consigned. They usually have twice as many feeder cattle offered.
Boxed beef markets have been stable. Choice was trading at $207.25 and Select was at $201.06 on good volume. Packers have turned up slaughter volumes to 635,000 head per week. These numbers reflect large increases in the number of fed cattle slaughtered compared to the prior year. It also includes larger carcasses by 20 pounds and this additional tonnage is being absorbed by the market.
Cassie Fish at Consolidated Beef Producers opined on the cattle situation, saying, “The corrective rally that started Monday in CME cattle futures turned tail and collapsed Thursday. As tiresome as it is to say, managed fund selling spurred by a resurgence in COVID-19 fears is the likely culprit, inspired by yet another big drop in equities.
CME cattle futures have divorced themselves from the fundamentals—unless you want to assume beef demand will suffer at some point—which is not true today. Negotiated cash cattle traded yesterday at $113, then again today at $113 and $182 north. Lower futures did not result in lower cash prices today.”
The Cattle Report chimed in and said, “Four of the five-buck rally has been erased. So, are futures beginning a giant whipsaw of price consolidation as they did after the Tyson fire? Or is a move to new lows next? Many experienced traders admit that is impossible to answer. The state of trading in 2020 is dramatically different than it was when any other national or global events have occurred. Computer algorithms determine order placement, then computers place orders faster than humanly possible. The velocity and volatility that result in price movements is more than most individuals can endure, especially after seven straight weeks. Unlike the global financial crisis of 2008, which was truly grave, the COVID-19 event is unchartered territory fueled by fear, a ripe environment for continued exploitation.
“The struggle is maintaining the strong economic conditions considering the developing fears on the coronavirus,” the report continued. “Federal Reserve Bank dropped interest rates a half of one percent in the largest one-time change in years in an attempt to rejuvenate and revitalize economic growth. Companies large and small were adjusting current conditions and future health threats. Breaking away from these fears will require an acceptance of the new strain of the flu and the idea we can live with it and will develop tools to combat it.
“A nationwide warm up might stimulate improved demand for beef. Spring is generally a strong period when consumers return to beef cuts and beef specials can be found in supermarkets around the country where many consumers are taking on extra levels of food supplies for inventory in the homes. Markets are slowly moving to a ‘live with it’ mode for the coronavirus.
“Commercial trade in replacement cattle is in a bifurcated mode with some sellers refusing to sell cattle and other sellers in panic mode accepting any bid they are offered. Feeder cattle sales have slowed as extreme reductions in bids leave only a few hedged stocker operations prepared to enter into transactions to sell. The halt is not only a result of sellers pulling out of the market. “Many buyers are leaving empty pens while waiting for the dust to settle before taking on additional inventory. Other buyers are bidding large discounts to the feeder board.
January placements were under prior year and February is on track to follow up with smaller placements. Breakeven calculations forecast losers in the feedyard. Stocker operators are staring at negative margins with high priced calves for the summer grazing season. The industry is always living moment to moment with promises of better markets in the future only to find retailers and processors are holding all the cards and making all the profits.” — PETE CROW
