Mid-Pandemic Cattle Marketing Advice: Protect Breakevens
By Jeff Rose
Normalcy. When do we expect that again in cattle markets? After COVID-19, we may never look at consumer demand and uncertainty the same way again.But, if you really think about it, we still know the same things we always know. The cattle on feed numbers have been calculated and we have a tremendous back log, nearly one million head.
Slaughter capacity is recovering; this is one thing that may never get back to the old normal. Most of the major packing facilities in the U.S. have taken at least two weeks off at some point in this pandemic, to slow the spread of infection, deep clean facilities and installing new protective worker shields and other protocols to distance workers from one another. Packers are fortunate they are making plenty of money to pay for these modifications.
This spreading out of workers will likely mean plants may never reach the same capacity as before the closures. All of this means more pain for cattle feeders. Your cattle have to be held and are getting bigger as we face hotter weather in the near future.We also, do not know the same things we usually don’t know. Will domestic demand be maintained while we work our way through this back log? Will exports increase or at least be maintained while we get caught up? The answer to the first question is not likely positive.
The dog days of summer are just about here, and packers have been gouging retailers for at least a month, making beef a hard sell to consumers. On top of this, restaurants will likely be one of the last businesses to return to anywhere near normal, which is not good for beef demand.However, foreign markets have a chance to step up as a bright spot in beef disapearance. Many of our biggest customers are buying more now that the pandemic is waning. One reason is other major beef exporting countries are just now starting to face some of the same challenges in their packing plants that we have already been through, here.
But, as other countries open back up, demand for U.S. beef will likely follow.So, what to do now? Right now, in my opinion, there are no opportunities on the nearby futures. As of June 4, the cash market is about $115.00/cwt and spot futures is quite disconnected at $95.50. This presents a great opportunity for feeders that are selling hedged cattle (basis +19.50 vs . expected basis of +1.00). However, opportunities are not as great for feeders who have not already protected their margins.
As always, run your numbers on new purchases and protect your breakevens. Call us for the latest marketing advice.
