After the catastrophic price collapse in cattle futures over recent months due to COVID-19, things may finally be looking up for cattle prices. Live cattle and feeder cattle futures seem to have found firm footing after testing price lows not seen in nearly a decade.
As the world starts to slowly emerge from COVID-19 quarantines, packer plants are also attempting to get back to a more normal routine as well. Full slaughter capacity may not yet be a realization, however it does seem that valiant efforts are being made to get processing back in line to meet consumer needs.
Cash markets
The June live cattle contract has recovered nicely off of the most recent lows. This price increase was due to an improving cash market, as well as a surge in retail values, due to the perceived tightness in the processing chain. Just weeks ago Choice beef values traded to new all-time high near $475. That value has started to creep lower as plants have come back into motion with recent values trading near 401. Packer margins are still high, and this has been helpful for cash prices, which have improved as of late to trade near $120. It is normal for June and August live cattle futures to trade at a slight discount to cash this time of year, but currently the discount is too large as front month June contracts are trading near $98 as of this writing.
Cattle slaughter continues to improve as plants come back online, but it should be noted that overall slaughter numbers are still approximately 25% below year ago levels.
Domestic demand and exports
Domestic demand for beef continues, and will likely continue to improve as quarantine restrictions ease and consumers get back to summer grilling. In addition, many restaurants are starting to allow dine in serving for customers rather than just carryout. Hopefully we will start to see an uptick in restaurant demand for product as well. When looking at export demand, recently the United States Meat Export Federation released the March 2020 export data. Overall, first quarter of 2020 beef exports were up 11% at 253,885 metric tonnes.
Supplies
The April Cattle on Feed Report was actually friendly as it indicated that the number of cattle and calves on feed for the slaughter market in the U.S. for feedlots with capacity of 1,000 or more head was 11.3 million head on April 1, 2020, 5% below April 1, 2019. The inventory included 7.08 million steers and steer calves, down 5% from the previous year. Heifers and heifer calves accounted for 4.22 million head, down 7% from 2019. Placements in feedlots during March totaled 1.56 million head, 23% below 2019. Placements were the lowest for March since the series began in 1996. With the historically low placement number, deferred cattle futures have friendly fundamental support. Unfortunately, the friendly tone of this report was over-shadowed by the Covid-19 issues.
Just recently released was the May Cattle on Feed Report, which further showed the implications of COVID-19 on the cattle market. Cattle and calves on feed for the slaughter market in the U.S. for feedlots with capacity of 1,000 or more head totaled 11.2 million head on May 1. The inventory was 5% below May 1, 2019. Placements in feedlots during April totaled 1.43 million head, 22% below 2019. This lower placement number was expected due to the COVID-19 issues, and has already been factored into the market. With the issues facing packing plants and COVID-19 outbreaks, it is no surprise that placement numbers were severely limited.
The marketplace will likely focus on cash prices going forward. If cash can continue to trade firm, nearby futures prices will likely continue to find support and trade higher. With grilling season here, demand strong, and packer plants making efforts to re-open, it does indeed feel like the tide is finally turning in cattle futures.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].
