The coronavirus disease seems to be developing into a pandemic, threatening a global recession, and cattle market analysts are wondering how far it will go and how bad it might be for beef markets.
“We’re in uncharted territory,” said James Robb of the Livestock Marketing Information Center.
As the U.S. Centers for Disease Control (CDC) suggested in late February a “high probability” of the U.S. being afflicted, live cattle futures dropped $7 in two days, Kansas sold fed cattle $5 under the previous week and auctions reported sharply lower calf prices.
Jeff French, analyst with Top Third Ag Marketing, told CNBC, “The market is suffering from the ‘get-me-out’ mentality. At any cost, funds are liquidating their long cattle positions.”
Analysts think that might be overreaction. While acknowledging a potential threat, David Anderson at Texas A&M University (TAMU) suggested it might just be “traders doing what traders do,” assuming the “worst case scenario.”
“The market is suffering from the ‘get-me-out’ mentality.”
Mike Sands at MBS Research feels the same. “I think there is some threat to the world in general, and the U.S. in particular, may be overreacting to the threat of the virus.”
He says the U.S. is better prepared to control the virus than other countries and the new organism is not nearly as dangerous as SARS and MERS, both of which seem to have been contained.
Brady Miller at the Texas Cattle Feeders Association said he hasn’t sensed any panic among members marketing cattle. “They’re just scratching their heads,” he said, wondering what’s next. “A recession won’t be good for the market,” he said, “but I don’t think we’re ready to jump off a cliff.”
And, for that matter, if this follows the route of similar viruses—like seasonal flu—it may all be history by time to market fall calves.
All that said, there are still some pretty ominous “mights” and “maybes” in the situation.
“You can’t unequivocally say it’s overreaction,” said Sands. “If it continues to spread and we start isolating and locking down and it gets into the populous areas of the West Coast and East Coast, the restaurant and food service are certainly vulnerable.”
The risk revolves around the threat of a global recession and the consequent effect on beef demand at a time when there is already an ample supply of cattle facing an overly-ample supply of competing meats
Typically, as Robb pointed out, hard times hurt beef demand more than competing meats because of its higher price. Compounding that threat, beef also relies more on restaurants and travel—both of which would presumably be hit hard by “stay home” restrictions.
China—a huge potential market for beef with promised new access—basically shut down commerce in the country’s attempt to prevent person-to-person spread. People were advised to avoid crowds. That seemed to slow the spread of the virus, but at a high cost to the economy.
People staying home meant no dockworkers to unload ships. No truckers to get meat to markets. Shiploads of meat—pork and chicken, and beef from Australia and South America—had to wait for unloading.
That happens just as both pork and poultry producers have been expanding in hopes of taking advantage of the newly opened Chinese market and the gaping demand for protein resulting from that country’s swine flu epidemic.
This is, as Robb pointed out, a critical time for the beef market. It’s about time for the traditional spring rally to begin as retailers prepare for the cookout season. Orders are already going out and uncertainly is hardly positive in that situation.
Still, TAMU’s Anderson described himself last week as “still optimistic” about the 2020 market. Beef demand is high, supplies are manageable. Others seem to agree.
“We are asking the American public to work with us to prepare, in the expectation that this could be bad.”
But the concern remains. Much depends on how, and how well, the CDC does in efforts to minimize the threat to the domestic population—still the biggest market for U.S. beef.
And, on that front, it is notable that health authorities seem pessimistic. Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases, told reporters that “It’s not so much of a question of if this will happen anymore, but rather more of a question of exactly when this will happen.”
She said businesses might have to cancel conferences and meetings and arrange for employees to work from home. “We are asking the American public to work with us to prepare, in the expectation that this could be bad,” she said.
There are a lot of reasons to hope such steps remain unnecessary. The rosy outlook for 2020 cattle prices is certainly one of them. — Steve Cornett, WLJ correspondent
