Call the Market

If you were to ask a cattleman how he's weathered the coronavirus outbreak, he would take a deep breath, look down at his boots, look back at you and say with a hardened face and toughened eyes: "It's been utter hell."

In a time when fat cattle prices are expected to surge, prices are crumbling right before producers' eyes, and yet boxed beef prices have made historic leaps and bounds. The amount of volatility that has overtaken the marketplace is hard to grasp and has cattlemen in despair.

What's happened since the New Year is crippling, but what's happened in the last two weeks was completely unforeseen. To put things into perspective, it's important that you understand what's all changed.

From the first trading day of the New Year (1/2/2020), April live cattle have fallen from $126.47 to $91.85 (3/16/2020), equating to a $34.62 loss in 2 1/2 months. In the last two weeks alone, the April live cattle contract has fallen $18.30. On the feeder cattle side, since 1/2/2020, the April feeder cattle market has fallen $38.40, and in just the last two weeks, the market has fallen $26.95. The cash cattle market hasn't fared any better. During the first full week of January, fat cattle in the Northern Plains were trading for $200 dressed and cattle in the Southern Plains were trading at $124 live, and business didn't get underway until midafternoon on Friday. This week dressed cattle have been bought in the North for $168 to $175, and live cattle in the South have been bought for $105 to $110 where trade developed as early as Monday and Tuesday. Dressed cattle prices have fell $25 to $32, and live cattle prices have fallen $14 to $19.

While the futures contracts and cash markets dwindle, on Monday, boxed beef prices made history. Monday's advancements were the greatest jumps choice and select cuts have ever seen -- choice up $16.22, select up $14.73. Previously, the largest jump in one day for choice cutouts was $7.74 on Aug. 12, 2019, and the largest daily jump on select cuts was $5.79 on Jan. 4, 2016.

It's not unfathomable to imagine that, with consumers rapidly buying products, prices jumped. However, the problem lies in the fact that one side of the marketplace is seeing life-of-the-contract lows and a broken cash market, while the other side of the market is seeing all-time highs.

It would be naive to think this was all due to the coronavirus. The futures market may struggle with keeping natural longs in the marketplace, but feeder calves are a perfect example of "natural longs," and yet their presence isn't holding any equality. The market's fundamentals have been long gone in exchange for fear and hysteria as trade continues to develop and react with logic and sensibility being an afterthought.

When will it be enough? When will prices weaken to the point of developing a bottom and we start to see the market regain strength? That is potentially the most frightening question, because when fundamentals are replaced with emotion, volatility overcomes the sector and logical answers can't accurately articulate reactionary movements.

There are a couple of things that need to be on our minds moving forward. One of those is the concern for keeping transportation open and accessible for the livestock industry. The second is ensuring that packing plants continue to process cattle in these times. DTN Ag Policy Editor Chris Clayton has spent many hours on the phone in recent days and stated in his last article that, "USDA Undersecretary for Regulatory Affairs Greg Ibach and USDA Deputy Undersecretary for Food Safety Mindy Brashears wrote that USDA's Food Safety Inspection Service (FSIS), Agricultural Marketing Service (AMS) and Animal and Plant Health Inspection Service (APHIS) are working to ensure the health of agency staff while providing timely delivery of the services to maintain the movement of America's food supply from farm to fork." The letter added that the three agencies are working with packers as well as state and local officials to "handle situations as they arise in your community" and stressed the importance of communication with industry.

Although the market hasn't been faced with a situation like this before, cattlemen are not unfamiliar with hardship. Just this weekend I was speaking with a cattle buyer who has weathered the test of time through many challenges. He has more skin in the game than most and has experience and knowledge that, in times like this, seem richer than pure gold. In our conversation, he said, "ShayLe, the worst thing cattlemen do in times like this is that they start to look at their assets like liabilities. During the market panic of the packing-plant fire last summer, I had to step out of the market until things stabilized. I had feeders calling me and merely begging for a bid. I simply told them that I couldn't wager what their calves were worth because I wasn't in a position to buy and that they wouldn't like the price I gave them anyways; yet they kept asking." After a long pause and sigh of frustration with folks buying into the fear, yet knowing all too well what it feels like, we later discussed the beauty of time. In situations like these, time has a way of curing market uncertainty. One positive thing about a bottom in the marketplace is that it's bound to rebound and extremes usually follow one another.

Lastly, while prices head into uncharted waters and concerns for day-to-day operations weigh heavily on minds, it's important to keep normalcy in your day-to-day life. The beautiful thing about raising cattle is that, every day, cows still need fed, calves still need tagged and life goes on. At this point, there's nothing we can really do but stand strong and weather the storm. The encouraging thing about ranchers is that, though the fight may be uphill and ugly, they know they have something worth fighting for and they step up to the plate every time.

ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com

(BE/CZ)

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