Accelerating panic about the impact novel coronavirus—Coronavirus Disease 2019 (COVID-19)—will have on the domestic and global economies drove equities and futures markets steeply lower last week amid harshly volatile trade.
Wall Street folks say it was the worst week for equities since the Great Recession in 2008. Week to week on Friday: the Dow Jones Industrial Average closed 3,513 points lower; the NASDAQ was down 1,189 points and the broader S&P 500 closed 383 points lower.
West Texas Intermediate Crude Oil futures on the CME sank an average of $8.27 lower week to week, through the first six contracts.
Then there was cash cattle and futures prices.
“U.S. cattle markets were affected immediately as beef demand is expected to be hindered in the near term,” say AMS analysts.
Cash calf and feeder cattle prices were $4-$10 lower in the North Central and South Central regions, according to the Agricultural Marketing Service (AMS). Prices in the Southeast were $2-$4 lower. Some producers cancelled consignments at various auctions, wanting to see how the dust settles.
Feeder Cattle futures closed an average of $7.74 lower week to week on Friday, from $5.50 lower at the back to $9.40 lower toward the front.
Thursday to Thursday, the CME Feeder Cattle Index sank $6.48 to $135.60. That’s a touch lower than any time since the Tyson plant fire.
Live Cattle futures closed an average of $6.34 lower week to week on Friday, from $3.70 lower at the back to $10.67 lower in new spot Apr.
“The April live cattle contract is trading at a $6.50 discount compared to the week’s cash price, which is contrary to seasonal trends for finished cattle,” explains Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “That same April contract which traded over $124 from the beginning of November until the third week of January, and actually exceeded $128 a few times, is now trading near $109/cwt.”
For perspective, the week following last August’s fire at the Tyson packing plant in Kansas:Feeder Cattle futures closed an average of $5.48 lower, the CME Feeder Cattle Index was down $4.06 at $137.60 and Live Cattle futures closed an average of $6.53 lower.
Although COVID-19 and a packing plant fire are completely different, the uncertainty spawned is similar. In the case of the former, it’s a matter of not knowing how far the virus will spread, how fast, when the likely pandemic will end and how much economic destruction will be wrought, from slowing economic growth, to displaced and delayed demand, to supply chain disruptions (see below).
“Producers must take advantage of the opportunities being offered by the market and buying is the opportunity being offered right now,” Griffith says. “In the short term, the predictability of the market, given today’s environment, is essentially null and void. However, longer-term predictability of market direction just became easier. With a total collapse in the market, the only direction the market can move with a longer term outlook is in a positive direction.”
Griffith suggests now might be a good time to consider hedging strategies related to purchasing cattle in the summer and fall months. Conversely, he emphasizes it’s not the time to hedge the sale of cattle in the summer and fall.
“There is a lot of time between March and August for this market to overcome the news of the coronavirus and bounce back to a favorable market price, when discussing feeder cattle,” Griffith says.
Fed Cattle Prices Start Lower and then Lose More Ground
Through Friday afternoon, negotiated cash fed cattle prices for the week were $4-$5 less on a live basis at $115/cwt. in the Southern Plains and Nebraska. Dressed trade was $3-$5 less in Nebraska at $185-$187 and mostly $7 lower in the western Corn belt at mainly $183.
All things considered, wholesale beef values held their own.Choice boxed beef cutout value was 21¢higher week to week on Friday at $205.30/cwt. Select was $2.79 lower at $198.91.
Moreover, Griffith points out packer cow and bull prices remain resilient.
“The market needs lean grinding beef and this need has resulted in strong slaughter cow and bull prices,” Griffith says. “Prices are expected to continue to increase the next few months, but some producers may find it advantageous to go ahead and move some of these cows that are consuming valuable hay and forage resources.”
COVID-19 Continues to Spread
COVID-19 has been front-page news since it was first identified in China in December-January. Besides its ongoing global spread last week’s heightened market panic seemed to stem from Centers for Disease Control and Prevention (CDC) reports.
In its situation summary Tuesday, CDC officials explained, “For the general American public, who are unlikely to be exposed to this virus at this time, the immediate health risk from COVID-19 is considered low. However, it’s important to note that current global circumstances suggest it is likely that this virus will cause a pandemic…”
CDC defines a pandemic as: “A global outbreak of a new influenza A virus. Pandemics happen when new (novel) influenza A viruses emerge which are able to infect people easily and spread from person to person in an efficient and sustained way.” There were four pandemics in the last 100 years, according to CDC.
Wednesday evening, CDC confirmed an infection with the virus that causes COVID-19 in California, in a person who reportedly did not have relevant travel history or exposure to another known patient with COVID-19.
“It’s possible this could be an instance of community spread of COVID-19, which would be the first time this has happened in the United States,” according to the CDC statement. “Community spread means spread of an illness for which the source of infection is unknown. It’s also possible, however, that the patient may have been exposed to a returned traveler who was infected.” So far there are 15 confirmed COVID-19 cases in the U.S.
Over the weekend, the first Covid-19-related death was reported in the U.S. As other nation’s reported their first infections, some counties heightened travel restrictions and population movement.
Late Friday, Federal Reserve Chair Jerome H. Powell issued this statement:
“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”
Friday to Friday Change
Weekly Auction Receipts
CME Feeder Index
|CME Feeder Index*||Feb. 27||Change|
*Thursday-to Thursday for CME Feeder Index
Cash Stocker and Feeder
|600-700 lbs.||$156.87||– $4.80|
|700-800 lbs.||$142.74||– $6.59|
|800-900 lbs.||$134.21||– $5.08|
|500-600 lbs.||$163.42||– $9.72|
|600-700 lbs.||$147.39||– $6.67|
|700-800 lbs.||$135.72||– $5.70|
|400-500 lbs.||$163.42||– $9.72|
|500-600 lbs.||$147.39||– $9.67|
|600-700 lbs.||$135.72||– $5.70|
(AMS National Weekly Feeder & Stocker Cattle Summary)
Wholesale Beef Value
|Boxed Beef (p.m.)||Feb. 28 ($/cwt)||Change|
|Ch-Se Spread||$3.39||+ $3.00|
|Feeder Cattle||Feb. 28||Change|
|Jan ’21||$142.350||– $5.500|
|Live Cattle||Feb. 28||Change|
|Feb ’21||$115.625||– $4.375|
|Mar ’21||$3.874||– $0.078|
|Oil CME-WTI||Feb. 28||Change|
|Equity Indexes||Feb. 28||Change|
|Dow Industrial Average||25409.36||– 3513.05|
|S&P 500||2954.22||– 383.53|
|Dollar (DXY)||98.13||– 1.13|