Call the Market

The Straight and Narrow Path Won't Be the Road Cattle Take

ShayLe Stewart
By  ShayLe Stewart , DTN Livestock Analyst
Bringing the market back to some state of normalcy is going to be a long and enduring process with new challenges at every turn. (Photo by Kayla Sargent)

Cattlemen and analysts are a lot alike -- we love it when the market is healthy, cringe when it's compromised, hate being caught blindsided by something we didn't foresee coming and often fall short as our human nature wishes for quick-fix solutions to our problems.

As my time increases as both an analyst and cattleman, I realize there isn't much assurance in the quick fixes. Realizing that the problem at hand is going to be a long, brutal battle is a painful realization, but a truthful reality settles emotion much more than a short-bought, soon-to-erupt-again quick fix.

I wish I could come to each of you, say that the cattle market is on the mend, and that the glistening horizon is right around this next bend. Unfortunately, recovering from the long-lasting problems that COVID-19 has created will be a long journey.

As the market tries to army crawl its way back to some fashion of "normal," like a soldier who's caught behind enemy lines on land that's laced with landmines, be prepared for the problems that are going to rise.

The first one: Boxed beef prices are going to crater, given the enormous, unsustainable rally they've had.

Second: It's vital that packing plants come back online and work vigorously to get through the backlog of cattle. As desperately as we need that to happen, however, that backlog will also throw supply-and-demand mechanics into the polar opposite problem we are in now.

And, let's not forget we are entering into the early feeder cattle video sale run. How feeder cattle prices will fare, and how eager producers will be consigning to those sales, is still unknown.

We had heard about the coronavirus way back in January; when restaurants started to close their doors in the second week of March, we knew it was going to get grim for the livestock industry. On March 9, choice cuts were at $207.36 and select cuts were at $202.32. Nine weeks later, on May 11, choice cuts rose to $468.58 (up $261.22) and select jumped to $452.97 (up $250.65). Feeder cattle prices were strong and the boxed beef market was also strong from early 2014 to the late summer of 2015. But, even at that point, the choice cuts were peaking at $265.59 (May 19, 2015) and select cuts peaked at $258.12 (Aug. 1, 2014).

Cattlemen would usually be excited to see beef prices climb stronger, as it would reflect a strong yearning for beef and trickle down to their own pocketbooks like it did in 2014. But the problem with the recent rally is, not only has it been one-sided with packers being the only ones seeing the dividends, but the consumer has fallen victim to this mess as well. Building a strong customer base by raising high-quality beef is what ranchers take pride in, but an increase like the market has recently seen is unfathomable and unsustainable.

So much of the marketplace is emotional, regardless of whether we'd like to admit it or not. Boxed beef prices shoot higher and cattlemen feel security; boxed beef prices dwindle lower and cattlemen become uneasy. In a market where price movements are based off supply-and-demand factors, these shifts are easier to swallow and somewhat justified by the mechanics of the marketplace. However, I warn you cattlemen -- when the boxed beef market starts to fall back to a normal range, it will have a psychological role in your decisions. We have to remember that it's a correction to the inflated prices and not a bearish reaction to beef. Easier said than done, but part of enduring the journey back to a normal, stable cattle market is seeing the hurdles before they come.

The feeder cattle market has been on the fringe of this ride -- producers hoping, wishing and praying that some state of normalcy is reached before the fall and that buyers are still interested in buying calves throughout the summer. It's hard to pinpoint where prices will drop with the numerous variables that are subject to change just this month.

Discernment and tactful observation need to be on the forefront of cow-calf producers' minds. Relying on the typical way they sell their cattle may not be enough this year. So much depends on how the backlog of cattle is handled and processed and the timing at which all is done.

Trying to grasp and realistically forecast when the backlog of cattle will be processed, how much the boxed beef correction will affect live cattle prices and how feeder cattle will fare this year is maddening. In these times, I find it most insightful to look at industry heroes that triumphed the greatest challenges and continued to come out on top.

Pat Goggins (known as one of the finest cattlemen of all time), in his very first, "As I See It," published March 20, 1957, stated, "Optimism is contagious. It not only helps every phase of the industry, from the producer and the range man out on the range, from the purebred man to the feeder, to the packer, but it helps the national economy and toward good will. Optimism is contagious and we all need to get energetically sick."

There's no doubt the challenges with which we are currently faced will continue to test the industry for a long time. Moving forward, on the long, winding road, optimism and perseverance could be the secret weapon.

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

ShayLe Stewart