Covid-19 creates challenges for the cattle industry
Through a late Friday announcement, cattlemen learned that Tyson will pay $5 per hundred weight more than the agreed-upon price for all cattle slaughtered during the week beginning March 23, 2020.
US Cattlemen’s Association Region X director, Justin Tupper, St. Onge, South Dakota, said the announcement came “totally out of the blue” and that the week’s increase in boxed beef prices was unprecedented.
“Boxed beef values increased by about $42/cwt. On a 900 pound carcass that equates to almost $400 more that the packer is pocketing.”
The St. Onge Livestock manager was stunned with Tyson’s announcement, which he said is a “drop in the bucket” – probably around $60 per head extra that feeders will see.
His organization has been urging Congress to ask for Department of Justice investigations into possible misconduct on the part of the packers.
“I’m sure they have been getting some pressure after the unprecedented rise in boxed beef prices,” he said.
Live cattle (finished cattle) were selling for around $105/cwt last week, Tupper said, while boxed beef was worth $154/cwt.
March and April are historically the best months of the year to sell fat cattle, said Tupper, so the market tumble is hitting especially hard.
The cattle market has felt the effect of COVID-19 (coronavirus) for weeks now.
Economist and rancher Brett Crosby, Cowley, Wyoming, said he is working with the U.S. Cattlemen’s Association to determine how many dollars feeders and cattlemen lost in value, due to the coronavirus pandemic. The organization plans to submit a request for an aid package from the federal government.
“The backgrounders and the feeders are the two sectors hit the hardest,” he said, because backgrounders are normally selling weaned calves this time of year to go to a feedlot or to grass. Feeders have finished cattle ready to slaughter, and every day the cattle wait to be marketed, they gain extra, unneeded fat and lose value, regardless of the market situation. In recent weeks, they have lost significantly more value daily because of continued slide of the market.
Fat cattle have diminished in value upwards of $140-$200 per head, he said, which equates to a a devaluing of $5,000 -$7,000 or more for each load of cattle sold. Many of the cattle headed to slaughter were already being fed at a loss, he said.
Meanwhile, packer margins remain strong, said Dr. Stephen Koontz, CSU ag economics professor.
“Packers are being paid well to attempt to stay open,” he said. The meat processing industry struggles to find workers on any given day, and the current pandemic only exacerbates that problem, he said.
“That packing job is one of the hardest in the world, it’s going to be hard to get people to work there when a lot of other jobs pay comparably.”
The drop in the live cattle market was to be expected, although not as severe, even before the coronavirus hit the media, he said.
“We had big numbers, big weights,” he said, and added that the U.S. economy wasn’t likely to continue doing so well forever.
“Their (cattle feeders’) only chance of mitigating loss is to buy cheap feeder cattle and hope we’re out of this in six months. They are motivated to move cattle now so they can buy some cheaper cattle,” he said. And while feeder cattle prices are valued below breakeven for backgrounders and ranchers, they still aren’t low enough for the cattle feeder to buy them and make a profit in the current market environment, said Crosby.
Many feeders were expecting a strong market through the spring because numbers were down slightly in January and February, due to feeder cattle not selling during the Holcomb fire market crash. “Those cattle would have normally come out in January and February and they had been pushed off,” he said. Crosby said those smaller numbers should have given feeders the chance to hedge well but the pandemic scare took that opportunity away.
Illness in Asia created concerns over the export market, initially pressuring down the cattle market in January, said Crosby. “Hong Kong, Japan and South Korea buy more US beef than the rest of the world combined,” he said. However, when looking at the data, Asian exports were 20 percent higher than the year before, year to date.
Crosby explains that hedged cattle lost less, but the fact that some are hedged and some aren’t, can exacerbate market downturns.
“Packers understand that as long as they bid enough higher than the futures that they are giving an incentive for anyone who is hedged to take a bid,” he said. “What happens is you have just enough people who are hedged just enough that are willing to let go, and accept a bid from the packers. And then that kind of forces everyone else to take that same price.”
And essentially nobody is hedged 100 percent, because they want to maintain the opportunity to make money in an up market, too, he explained.
R-CALF USA is asking President Trump for 5 “stop gap” measures in the face of the cattle market downturn:
1. Direct lenders to grant emergency extensions of loan repayment deadlines and provide essential emergency operating funds.
2. Grant federal capital gains tax relief for farmers selling land, cattle, and equipment to remedy their current financial plights.
3. Eliminate the red tape that prevents state-inspected beef plants from selling beef across state lines to increase competition for cattle and eliminate the current bottleneck in beef distribution to consumers.
4. Suspend the decision to allow raw beef from disease-affected Brazil.
5. Direct the U.S. Department of Justice to immediately investigate the cause of this week’s inexplicable market volatility marked by severely depressed cattle prices and skyrocketing wholesale beef prices.
The organization also requested a brief face to face meeting with the president a well as for the administration to:
Place immediate limits on the percentage of cattle that packers can procure through arrangements that both circumvent and undermine the competitive cash market (to preserve the integrity of our industry’s nearly destroyed price discovery market, which, importantly, informs our industry’s futures market).
Require all beef sold in America to be distinguished as to where the animal from which it was derived was born, raised, and harvested so American consumers can put American cattle producers First and choose to purchase safe, wholesome, exclusively American beef.
USCA is concerned about anti-competitive behavior by packers who are buying cattle on a down market and selling beef into a market with significant demand.
NCBA is asking for a government assistance package.
“In order to combat this staggering burden, NCBA has been actively engaged with leaders in both the U.S. Senate and House of Representatives to ensure that relief funds from any aid package reach these struggling cattle producers directly. It is important that any such relief avoids the lasting market-altering effects of a price support program, such as those that have been proposed by some members of the Senate. Instead, we must keep the focus on providing quick, targeted relief to struggling producers. While the effects of COVID-19 will be felt across the country, we must ensure we avoid permanent, fundamental changes to workings of the American cattle market. We applaud Senators and Representatives from across the country who are working to provide those solutions using proven avenues such as the Commodity Credit Corporation as administered through USDA.
Crosby is concerned about those producers who will be forced to sell cows and heifers to pay bills. “We’ve already been seeing a liquidation, this will likely accelerate it,” he said.
South Dakota Senator Mike Rounds, a Republican, is concerned about increased bankruptcies.
According to a news release, Rounds intends to introduce legislation that would direct the Secretary of Agriculture to use Commodity Credit Corporation (CCC) funds to offset losses cattle producers take in the live and feeder cattle markets. He requests that cattle producers be paid based on USDA’s projected average feeder cattle price, so if their cattle sold for less than the said value, the producer would receive the difference.
Rounds also called on the President to support trade deals that support mandatory Country of Origin Labeling for beef, and called for investigation into whether the nation’s top meat packers have engaged in anti-competitive activity by abusing their concentration of market power and have engaged in an unlawful price fixing scheme.
Koontz said the industry needs another month to figure out what the economy is doing, whether the job market will be affected long term, and more. He said because beef is the highest price protein, it is affected significantly when consumers are uncertain of their incomes. He acknowledges, however, that some feeders needing to offload cattle don’t have a month or two to wait. The cattle industry isn’t alone in its struggles. “Everyone is in the same boat,” said Koontz. What we’re going through is market-wide.”
Cattlemen in every sector should consider risk management tools, such as USDA’s price insurance, he said. “We’ve gotten used to not thinking about risk management. I think it needs to be a regular consideration in any sort of farming and ranching operation.”
While social media outlets are full of consumer testimonies of “empty shelves” in grocery store meat coolers across the country (this writer saw evidence of such from shoppers in California, Arizona, North Dakota, Montana and more), beef isn’t necessarily flying off shelves across the country, Koontz said.
Kids being home from school won’t significantly impact food purchases overall because the total number of consumers in the country hasn’t changed, he said.
What can cattle folks expect in the coming weeks? That is the million dollar question. “The laundry list of stuff we don’t know is enormous,” said Koontz. “We need some time.”
“These are unprecedented times. But every generation has those times,” said Crosby.