Early in the month of March, cattle and beef markets began to price a worst-case scenario. Composite beef values rallied as retailers chased supplies. Fed cattle prices softened as animals were pulled forward from the pool of already large supplies. Wholesale margins widened considerably to the consternation of upstream and downstream market participants.
But the concern was clearly about supply chain disruptions in slaughter and fabrication. Now, one month later, the market concern has clearly come to fruition. Several North American beef plants are temporarily offline or are operating at reduced speeds. The first week of April, steer and heifer slaughter were close to 550,000 head.
The prior four weeks of March slaughter was close to or above 500,00 head per week. The last full week of April slaughter was likely around 400,000 head or lower. We will have to wait until the end of the month to see the USDA data but these are reasonable estimates given the known impacts on plant operations. Packer margin discussions are irrelevant when plants don’t run.
How long will reduced beef plant operations continue? That is the next unknown the market is pricing. Boxed beef values have given back half of the late-March rally. And individual primal cut values are showing their relationship to at-home versus away-from-home consumption: End meats are strong and middle meats are weak.
Fed cattle prices continue to soften and the impact of delayed marketings will weigh on the market until summer. The normal spring rally in fed and feeder cattle will be able to be talked about next year. Fed animal slaughter weights have started the seasonal decline but the inventory of long-fed cattle is climbing.
The most recent Cattle on Feed report is inventories as of the first of the month and flows from last month. So, the uncertainty of pricing short-term needs and availability will be unclear for at least another month. Some certainty to the course of the COVID-19 pandemic will be needed to mitigate this risk.
Recall the record low hog prices of 1998. We don’t often consider the possibility of something like that happening again. Perhaps now is the time. And any concern that producers have about cattle and beef prices needs to consider what happened in the oil futures market on April 20 and April 21.
The May crude oil contract closed at -$37.63 per barrel on Monday, after trading down to a -$40, and opened at -$14 on Tuesday. Apparently, there was a long position that needed to be liquidated… Regardless, the oil complex is trading below $15 in the nearby and below $30 for the rest of the year. This is not good news for the economy. — Stephen R. Koontz, Department of Agriculture and Resource Economics, Colorado State University
