Cattle Current Daily—Mar. 16, 2020

Cattle Current Daily—Mar. 16, 2020

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.

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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.

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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.”

2020-03-15T20:43:01-06:00

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