April 6, 2020
Working in the cattle industry has never been easy. Each day contains unknowns such as weather, unpredictable short-term market moves, or typical logistical challenges to manage. But when the unknowns rise to the level of a national or even global focus, it becomes more difficult to manage emotions and maintain perspective.
The COVID-19 situation has dominated media coverage and markets for much of the past month. Volatility and uncertainty have ruled the day, and for good reason. We are in uncharted waters, not only from a financial standpoint, but also from a health and safety standpoint.
But while this situation is unique in the threats and challenges it poses, we must remember that at some point, this too shall pass. No one can yet tell when exactly that will be, nor what changes, if any, the new normal will contain. But there will be a normal again. And in the meantime, there is much to be said for all of us keeping that in the forefront of our minds.
Not 1st beef financial crisis
People throughout the cattle industry have weathered difficult storms before.
The early Christmas news of the first U.S. BSE case in 2003 was a major challenge. The loss in financial footing resulting from the economic recession in 2008 and 2009 was a serious event. Yet, in both cases, cattle markets and industry participants recovered from those uncertainties and continued to push forward.
Everyone reading this column likely has a personalized list of events that proved particularly challenging to their individual or professional livelihood, yet you have persevered.
Have cattle markets responded particularly negative to the coronavirus situation in terms of both downward moves and volatility? Yes. Are there other issues out there that make dealing with this challenge more difficult and uncertain? Yes. But remember, some economists in 20 years will be looking back at this time to compare it to whatever the issue of those future times happens to be. We will get through this.
The graph of live cattle futures contracts during tough times shows the severity of the COVID-19 news in early to mid-March. However, live cattle futures markets have recovered as boxed beef prices moved substantially higher as consumer demand in grocery stores has been incredibly strong for beef products.
Push through cattle market uncertainty
There are many questions about where cattle markets will move from this point forward, and it remains difficult to have all the right answers. There are some critical pieces to watch in the weeks and months ahead.
First, as the U.S. continues to practice social distancing and large portions of the economy remain essentially shut down, the chances of a substantial economic retraction increases. The recent record 3.3 million jobless claims provide the first clear sign on the potential economic slowdown.
Although beef demand has been stronger than expected in the near term, demand could wane as the economic downturn outweighs the recent strong grocery store sales. The government stimulus packages could help temper the economic downturn and will be important in economic growth in 2020.
Second, some countries are beginning to restart their economies as new COVID-19 cases move much lower. China, for example, could increase imports of U.S. beef and help push beef and cattle prices higher. Other countries also could increase U.S. beef imports as newer trade agreements take effect.
Third, by the end of this year, slaughter-ready cattle supplies should begin to decline given recent cattle placement data. Cattle slaughter has been more than 3.5% above year-earlier levels for the first two months of 2020, and it has been a drag on cattle prices.
The exact path of cattle prices for the remainder of 2020 is uncertain as these three different market influences will affect prices differently. The one thing that likely will unfold is more market volatility.
Weakness in U.S. beef demand as economic contraction unfolds could make this summer tough from a cattle price standpoint, but as the economy recovers from the COVID-19 effects and cattle supplies shrink, the latter part of 2020 could look better from a price standpoint.
Fear and uncertainty are the most difficult issues for markets to handle, and they can be tough on individuals too. Keep moving forward, separating those items that you can control for your operation from those you cannot. Stay abreast of the resources that are in place to help you through these times. Nobody said it was going to be easy, but this too shall pass.
Brown is a livestock economist with the University of Missouri. He grew up on a diversified farm in northwest Missouri.
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