WLI

Markets remain firmly entrenched in the COVID-19 panic that is forcing widespread disruptions to how people go about their business, while slowing economic wheels.

Live Cattle futures showed signs of life Monday, with surging wholesale beef values, but sank hard again, as did Feeder Cattle.

Live Cattle futures closed an average of $3.73 lower.

Feeder Cattle futures closed an average of $4.47 lower, limit-down in all but one contract.

Wholesale beef values rocketed higher Monday, with heavy offerings, as retailers replenished supplies windrowed by consumers stocking up.  There was also likely some defensive buying against potential challenges in the supply chain.

Choice boxed beef cutout value was $16.22 higher Monday afternoon at $224.36/cwt. Select was $14.73 higher at $216.71.

Corn futures closed 11¢ and 10¢ lower in the front two contracts and then mostly 4¢ to 6¢ lower.

Soybean futures closed 18¢ to 27¢ lower through Jly ’21 and then mostly 14¢ to 16¢ lower.

*******************************

Major U.S. financial indices on Monday gave back everything recovered in the previous session, despite aggressive action by the Fed over the weekend and the economic support previously announced by the White House.

West Texas Intermediate Crude Oil futures on the CME closed $2.76 to $3.03 lower through the front six contracts, down to $28.70 in spot Apr.

The Dow Jones Industrial Average closed 2,997 points lower. The S&P 500 closed 324 points lower. The NASDAQ was down 970 points.

*******************************

“The cattle and beef industry, along with the rest of the U.S. and global economy is in uncharted waters with the coronavirus pandemic. There are many unknowns about the timing, severity and aftermath of the disease,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “For the beef industry, there are longer term questions about overall impact on domestic and international beef demand, with questions about a U.S. and global recession looming large. In the short run, the actions needed to manage the epidemiology of COVID-19 is having significant impacts on beef supply chains.”

Peel explains beef products flow through three primary market channels: retail (grocery), food service and exports; each using separate supply chains. Domestically, based on USDA data, he says food at home, which approximately matches retail grocery, represents about 46% of total food expenditures in the U.S. Food away from home represents about 54% of total food expenditures. 

“The immediate response to COVID-19 is to limit travel, gatherings and public activities. Reduced travel, fewer restaurant visits and school closures all impact the HRI sector (hotels, restaurants, institutions),” Peel explains. “This implies a dramatic shift of food from the food service (HRI) sector into retail grocery sales. This represents huge demands on grocery store sales and the logistics of supplying retail stores. For beef, there is immediate demand for more processing, packaging and shipping of beef for retail sale and less processing and shipping of meat through food service distribution channels.”

Moreover, Peel notes each marketing channel utilizes a different mix of beef products.

“There will be a variety of impacts on markets for specific beef products,” Peel explains. “For example, increased demand for ground beef has resulted in local shortages of product at grocery stores, while reduced restaurant demand may result in weaker middle meat sales. We can expect significant disruptions and stress on beef supply chains given the consumption changes associated with requirements to control COVID-19.”

Should the labor forces of beef packing, processing, or shipping be directly impacted by COVID-19, Peel says supply chain disruptions could be more significant.

Note: Cattle Current is dependent on a couple other businesses to house the Cattle Current website, edit the podcast and the like. If Cattle Current goes missing in the days/weeks ahead, it will likely be due to COVID-19 disrupting one of those businesses. If such a disruption occurs, we’ll get back on schedule as quickly as possible.

Negotiated cash fed cattle trade was established at $110/cwt. on a live basis last week, which was $3 lower in the Southern Plains and Nebraska; $2-$5 lower in the western Corn Belt. Dressed sales were $5-$7 lower at $175-$176. There were trades at lower money later in the week, but too few to trend.

Cattle futures attempted to follow equity markets higher early on Friday, but ended mostly expanded limit-down, amid chatter about the potential of coronavirus to disrupt packing plant operations. I could find no confirmed reports of closures or reduced schedules for the major packers, but the vulnerability is a logical concern, given cattle numbers and strained packing capacity. 

Live Cattle futures closed an average of $4.38 lower. That’s an average of $7.37 lower in the last two sessions.

Feeder Cattle futures closed an average of $6.51 lower. That’s an average of $11.01 lower in the previous two sessions.

Wholesale beef values were sharply higher on good demand and heavy offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $2.13 higher Friday afternoon at $2018.14/cwt. Select was $4.10 higher at $201.98. Although food service demand will likely suffer for a time as more consumers stay at home, retail demand is likely benefiting from those same consumers stocking up.

Corn futures closed mostly 1¢ higher.

Soybean futures closed 8¢ to 10¢ lower through Jan ’21 and then mostly 3¢ lower.

*******************************

Major U.S. financial indices on Friday grappled back a major chunk of the previous session’s steep losses. Optimism was fueled by a number of moves by the Federal government to battle COVID-19 and its economic impact:

• President Trump instructed the Energy Department to purchase oil for the U.S. strategic petroleum reserve, to help stabilize and boost energy prices.
• The White House announced more coronavirus tests would be available this week.
• The U.S. House of Representatives was on its way to passing the Families First Coronavirus Response Act (H.R. 6201), a legislative package supported by President Trump. Among other things, it includes free coronavirus testing, an emergency paid sick days program, senior nutritional assistance and SNAP flexibility for low-income jobless workers. The legislation passed Saturday morning.

The Dow Jones Industrial Average closed 1,985 points higher. The S&P 500 closed 230 points higher. The NASDAQ was up 673 points.

On Sunday, the Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate to 0.00% to 0.25%.

“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook,” according to an FOMC statement. “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2% objective.”

The FOMC statement also notes, based on available economic data, the U.S. economy enters the days of COVID-19 on solid footing with strong job gains, low unemployment and increasing economic activity.

“To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion,” according to the statement.

*******************************

Gauging the ultimate impact of COVID-19 on the cattle business, much less the U.S. and global economies is impossible at this stage. While you can find some similarities, there appears to be no direct parallel between this market shock and black swan events impacting cattle markets in the past.

Best as anyone can tell, COVID-19 should be temporary, at least for this year. As the director general of the World Health Organization pointed out earlier in the week, more than 90% of reported global coronavirus cases were in four countries at the time. The epidemic was declining significantly in two of those, including in China, the epicenter of the pandemic.

It seems unlikely that overall economic impact on the U.S. economy will be as severe or as long lasting as what followed the financial and liquidity mess that spawned the Great Recession.

For one thing, this isn’t a financial problem, but a biologic one impacting supply chains and demand. For another, the U.S. and many central banks around the world are aggressively taking action to minimize the economic impact, in concert, in some cases. Besides which, the nation’s finances are much stronger by about any measure, compared to those days heading into the Great Recession.

At some stage, when it appears the worst is over, it’s easy to imagine a sharp market bounce in response to less uncertainty and pent up demand. For instance, even before the epidemic slows in the U.S., international demand for U.S. beef could be on the rise as recovering countries get back to what will then be a new form of business as usual.

In the meantime, wholesale beef values continue to hold together domestically, as consumers shift toward eating more meals at home.

“Most markets in the cattle and beef complex are moving contra-seasonally, due to world heath issues and the economic slowdown that comes with it,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “When relief finally comes is anyone’s guess, but there should be just as strong of profits on the other side of this market as there are losses in the current environment.”

Equities and futures markets plunged deeper Thursday amid a growing list of event cancellations, altered business schedules and continued widespread panic related to coronavirus and its impact on the domestic and global economies.

Except for $2.97 lower in the back two contracts, Live Cattle futures closed limit-down $3.00.

Feeder Cattle futures closed limit-down $4.50 across the board. 

Wholesale beef values were lower on Choice and higher on Select with light to moderate demand and moderate to heavy offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $1.16 lower Thursday afternoon at $206.01/cwt. Select was $1.39 higher at $197.88.

Corn futures closed mostly 3¢ to 6¢ lower.

Soybean futures closed mostly 10¢ to 14¢ lower.

*******************************

Major U.S. financial indices had their worst day since 1987, according to market pundits.

The Dow Jones Industrial Average closed 2,352 points lower. The S&P 500 closed 260 points lower. The NASDAQ was down 750 points. So, over the last two sessions, the Dow Jones Industrial Average is down 3,816 points, the S&P 500 is down 400 points and the NASDAQ is 1,142 points lower.

*******************************

Although COVID-19 and the ensuing panic are upending markets, Stephen Koontz, agricultural economist at Colorado State University, noted earlier in the week that signs of slowing domestic and global economic growth were already increasing.

The broader U.S. macro economy entered the current debacle in reasonably good shape, with healthy levels of employment and consumer spending. At the same time, in the most recent issue of In the Cattle Markets, Koontz points out business investment was relatively weak and had been since it became clear that trade issues and their impact on the global economy would continue to linger.

Koontz also notes government spending stimulus was due to run its course this year, while any economic growth from tax cuts appeared focused in subsectors rather than the economy as a whole.

Globally, Koontz explains macroeconomics were much weaker than in the U.S. For instance, he says economic growth for European and Asian economies was modestly to substantially weaker year over year.

Cattle market headwinds were also swirling ahead of coronavirus.

“Protein balance sheets have clearly shown and continue to show a problem for the first quarter of 2020 for beef, and for much of the year for pork and poultry. Numbers of animals and carcass weights are higher through the first quarter and have the potential to be higher for the rest of the year for the competing meats,” Koontz explains. “Downward pressures on protein prices required substantial exports to not have much weaker prices than the prior year. Supplies have materialized and exports have not. Global economic uncertainty adds to this. For cattle markets, price pressure will persist through April and possibly into May. Placements through the last half of 2019 were delayed by the slaughter plant fire. October and November placements were strong. On-feed numbers and marketings will be relatively heavy until the summer. And slaughter weights are substantially above last year…

“These factors, and the broader macroeconomic concerns, suggest persistent weakness in cattle prices through the spring. And, until the dynamics of the health crisis are more certain, there will be considerable volatility.”

Negotiated cash fed cattle traded in the Southern Plains and Nebraska at $110/cwt. on a live basis Monday, which was $3 lower; $2-$5 lower in the western Corn Belt at the same money. Early dressed sales were $5-$7 lower at $175-$176.

Three lots—460 head—were offered in the weekly Fed Cattle Exchange auction. All sold for an average weighted price of $110/cwt., with delivery of 1-9 days for 384 head; 1-17 days for the remainder.

Cattle futures reversed directions again Wednesday, closing mostly limit-down and subsumed once again by coronavirus fears and sharply lower outside markets.

Live Cattle futures closed an average of $2.84 lower.

Feeder Cattle futures closed an average of $4.48 lower. 

Wholesale beef values were steady on Choice and lower on Select with light to moderate demand and moderate offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 8¢ higher Wednesday afternoon at $207.17/cwt. Select was $2.22 lower at $196.49.

Corn futures closed mostly 2¢ to 4¢ lower.

Soybean futures closed 3¢ to 5¢ lower.

Incidentally, CME Group announced Wednesday evening that it will close its Chicago trading floor as of the close of business this Friday the 13th, as a precaution to reduce large gatherings that can contribute to the spread of coronavirus, in line with the advice of medical professionals. All products will continue to trade on CME Globex as they do today.

That organization joins an expanding list of companies, groups and sports leagues cancelling, suspending and altering. You may have heard the Houston Stock Show and Rodeo cancelled the remainder of this year’s run Wednesday afternoon, with 11 days left; the NCAA also announced attendance at the upcoming March Madness basketball tournaments for both women and men will be limited to players, families and essential staff…the list goes on.

*******************************

Major U.S. financial indices tanked on Wednesday after the World Health Organization (WHO) declared COVID-19 a global pandemic.

In a Wednesday press briefing, Dr. Tedros Adhanom Ghebreyesus, WHO director general said, “We’re deeply concerned, both by the alarming level and spread, and by the alarming levels of inaction. We have, therefore, made the assessment that COVID-19 can be characterized as a pandemic. Pandemic is not a word to be used lightly or carelessly. It’s a word, if misused, can cause unreasonable fear or unjustifiable acceptance that the fight is over, leading to unnecessary suffering and death.”

At the time, there were 118,000 cases of COVID-19 in 114 countries and 4,291 fatalities.

According to Dr. Tedros more than 90% of current COVID-19 cases are in four countries, with the epidemic declining significantly in two of those: China and Korea. As of noon Wednesday, the Center for Disease Control and Prevention cited 938 U.S. cases, in 38 states and the District of Columbia; 29 deaths.

The Dow Jones Industrial Average closed 1,464 points lower. The S&P 500 closed 140 points lower. The NASDAQ was down 392 points.

*******************************

USDA lowered expected fed steer prices (five-area direct) for this year by $2.50 from the previous month to $114.50/cwt., in the latest World Agricultural Supply and Demand Estimates (WASDE). That’s based on current price weakness, as well as increased expected beef production.

Compared to the previous month, analysts with USDA’s Economic Research Service (ERS) increased anticipated beef production this year by 220 million lbs. to 27.7 billion lbs., which would be 549 million lbs. more (+2.02%) than last year.

Total red meat and poultry production for 2020 was estimated 647 million lbs. more than the previous month at 109.43 billion lbs. That would be 4.17 billion lbs. more (+3.96%) than in 2019.

ERS pegs fed steer prices at $118 in the first quarter, $114 in the second quarter, $111 in the third quarter and $114 in the fourth quarter.

“The 2020 beef import forecast is raised from last month on higher expected imports of processing grade beef, while the export forecast is reduced on weaker anticipated demand in several markets,” say ERS analysts.

Among other WASDE highlights:

U.S. corn supply and use outlook for 2019-20 was unchanged. The season-average corn price received by producers was lowered 5¢ to $3.80/bu. based on observed prices to date.

U.S. soybean supply and use projections for 2019-20 were mostly unchanged. The U.S. season-average soybean price is projected at $8.70/bu., down 5¢. The soybean oil price is projected at 31.5¢/lb., down 2¢. Soybean meal prices are unchanged at $305/short ton.

U.S. wheat supply and demand outlook was unchanged. The projected season-average farm price is also unchanged at $4.55/bu.

Cattle futures finally found some traction Tuesday, gaining back a little better than half of the previous day’s sharp losses, once gain following the same trajectory as equity markets.

Live Cattle futures closed an average of $1.79 higher ($1.10 higher to $2.60 higher in spot Apr). 

Feeder Cattle futures closed an average of $2.51 higher ($1.55 higher in spot Mar to $3.10 higher). 

Wholesale beef values were weak on Choice and sharply lower on Select with light to moderate demand and offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 27¢ lower Tuesday afternoon at $207.09/cwt. Select was $3.61 lower at $198.71.

Corn futures closed mostly 3¢ to 4¢ higher through Jly ’21 and then 1¢ to 2¢ higher.

Soybean futures closed mostly 4¢ to 7¢ higher.

*******************************

Major U.S. financial indices closed sharply higher Tuesday after a whipsaw ride and buoyed by chatter out of the White House about economic stimulus to bolster the domestic economy in the wake of coronavirus.

It also helped that crude oil recovered some of the previous day’s sharp selloff.

West Texas Intermediate Crude Oil futures on the CME closed $2.90 to $3.23 higher through the front six contracts.

The Dow Jones Industrial Average closed 1,167 points higher. The S&P 500 closed 135 points higher. The NASDAQ was up 393 points.

*******************************

U.S. beef exports in January were 2.5% more than a year earlier at 107,347 metric tons (mt) and export value was 5% more at $672.7 million according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).

In fact, beef muscle cut exports were the highest ever for the month of January at 81,342 mt, up 4% from a year ago, while muscle cut value increased 5% to $589.2 million.

Export value per head of fed slaughter was $302.93, up 3% from a year ago.

USMEF President and CEO Dan Halstrom notes coronavirus had an impact on red meat exports, which will likely be more evident in February and March data. At the same time, he says a number of supply and demand fundamentals and market access improvements underpinned continued strong export volumes.

“The first quarantine actions in China were taken in late January and the calendar had turned to February before coronavirus became a major health concern in countries such as South Korea and Japan,” Halstrom explains. “But despite logistical challenges, a severe decline in tourism and a notable impact on sit-down dining, overall demand for red meat in these markets is quite resilient. Retail meat sales remained strong and both retailers and restaurateurs are utilizing e-commerce and delivery services at unprecedented levels. While it’s definitely a challenging situation, the Asian food industry is adapting to these conditions and finding creative ways to accommodate consumers.”

Also positive for beef is the fact that U.S. pork exports in January were 36% higher year over year at 273,603 mt, while pork export value was 50% higher at $738.7 million—the second highest levels on record for both volume and value.

Pork exports to China/Hong Kong led the way: 263% more for volume and 361% more for value at $245.3 million.

Pork exports to Mexico, which were hampered by retaliatory duties in the first five months of 2019, increased 6% in volume and jumped 40% in value to $134.7 million.

“The January data really underscore the difficult situation U.S. pork was facing in Mexico a year ago,” Halstrom explains. “Exporters kept much of the volume moving, but the U.S. industry absorbed most of the 20% duty in the form of lower prices. With duty-free access restored and the U.S.-Mexico-Canada Agreement moving toward implementation, we look forward to a continued rebound in Mexico’s demand for U.S. pork.”