Active movement in boxed beef values has been a significant focus of the cattle market during the last two months, with choice boxed beef prices surging nearly $40 per cwt higher between late October and late November. The concern that increased late-year COVID-19 cases would significantly reduce overall beef supplies during the holiday seasons has sparked aggressive buyer support.
But just as quickly as prices surged to these recent highs, an aggressive market freefall started to develop, which caused choice boxed beef prices to give back nearly all of the recent gains.
Watching the daily price moves remains extremely unnerving to any market participant, and this is where it is helpful to be able to put the market in perspective with longer-term market direction and price boundaries. In the adjoining chart, (black line), with the exception of boxed beef prices orbiting to the moon and back during the early stages of the COVID-19 pandemic, prices have been generally well-contained to a $35 per cwt price range (parallel black lines). It is also very helpful to look back to 2019 price moves, where similar highs and lows were placed in the fourth quarter of the year, as beef values continue to follow seasonal patterns.
Wholesale beef values will continue to be a major indicator of the cattle market during the next several months, with current food service demand losses significantly limiting the ability to move additional product through the system. With hope that aggressive vaccine rollouts will create a return to normal business activities in the next few months, the potential to test the upward side of this market range during the spring and summer of 2021 is a strong possibility.
There is no argument that the events of the last 18 months have created significant shifts in the beef and cattle markets, and this is evident in the live cattle and cash cattle price charts (red and blue lines). Given all the market uncertainty through the last several months, even cattle prices have been well contained within a $10 per cwt price range (parallel blue lines) during the last half of 2020.
The hope is that price levels will be able to become more stable during the coming weeks and months, but the concern that recent ranges may hold during early 2021 could limit upside potential in cattle prices.
With each up-and-down cycle in live cattle and cash cattle through the last eight months, prices have seen more stability, with the potential that a "flatter" and less volatile market structure is developing at the end of the year. As we move past the extreme cattle price volatility seen between September 2019 and July 2020, the focus on returning to "normal" has helped not only to minimize price shifts, but also to create longer-term market projections for the weeks and months ahead.
Although record or near-record numbers are still expected to be seen in the upcoming Cattle on Feed report Friday afternoon, the developing beef demand will help to clear product at an even more rapid pace during 2021. Current long-term beef demand estimates are not pointing to a strong market change in the next year, but given the current market situation and desire by most consumers to get back to a sense of reality (more burgers and steaks with friends and family), the potential for a rebound in the market is likely once restrictions are reduced or lifted.
Though current market ranges are holding -- and in the case of cattle prices they show we are in a better position than seen for most of 2020 -- the possibility that new market ranges may be established in 2021 creates both hope and excitement in the industry. The ability for stability to develop in boxed beef values in the coming weeks will be closely monitored, with anticipation that this will set the tone for cattle price direction through early 2021.
Of the many things that 2020 will be known for, cattle and beef markets moving outside the ranges will be long held in market lore, but as the last several months have shown, established ranges can create comfort and stability ... even in the cattle market.
Rick Kment can be reached at firstname.lastname@example.org
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