Russia’s invasion of Ukraine has undoubtedly jostled numerous markets from grain to gas to groceries, and the beef market is no exception. Oklahoma State University Cooperative Extension Livestock Marketing Specialist Derrell Peel said although cattle prices have not seen big changes so far, the conflict in Ukraine will have indirect consequences for cattle producers and the beef market in general.
“Initially I wouldn’t say that there have been a lot of impacts on beef markets other than the fact that cattle futures have reacted, as they could and should,” Peel said. “Lower futures, at least in Oklahoma, have led to lower cash prices at auction.”
Although Russia and Ukraine export large percentages of the world’s grain supply, they are not significant beef exporters or importers. According to the U.S. Department of Agriculture, Russia ranks 10th in world beef production and provides 1,378,000 head or 2.27% of the world’s beef. Ukraine is significantly lower in numbers with 350,000 head or 0.58%, putting them in 21st place.
“We haven’t exported beef to Russia for about a decade and no pork or poultry for about seven or eight years,” Peel explained. “Russia is just not a big enough player to have a large enough impact to directly affect beef markets at this time. However, that could change depending on what some other countries do. One of the unknowns is how China will react, which could have a big impact on global markets as they are by far the biggest beef importing country in the world.”
Apart from the price of cattle, the biggest concerns for beef producers will be indirect impacts that will affect their input costs. The major anxieties surround the three F’s: feed, fuel and fertilizer. When Ukraine—the fourth largest exporter of corn totaling 15% of world exports and Russia, sixth in world exports, equating to 2.3% of corn exports—stopped exporting grain, prices naturally surged due to supply and demand.
“The grain markets reacted with a dramatic increase anticipating the worst and cattle futures markets reacted negatively because of grain prices,” Peel said. “They’ve both started to correct, but with that said, this is a situation where there is absolutely no way to predict where we go from here. This is not an economic event or a weather occurrence where we can predict the path of recovery. This is ongoing, and what happens next literally depends on one man.”
Gas prices have catapulted from $2 a gallon to more than $4 a gallon across the U.S., partially due to the halting of fuel exports from Eastern Europe; and it is expected to increase as the war continues. Additionally, Russia and Ukraine are fairly significant exporters of fertilizer, and although the U.S. doesn’t import an excessive amount of fertilizer directly, if they are not exporting to the rest of the world, it will impact U.S. prices.
Peel also indicated the timing of this invasion could be disastrous for fall harvest in the Ukraine.
“We’re just a few weeks away from springtime in the Ukraine and if they can’t plant summer crops, then we have more direct impacts,” he said.
What is to come?
“Longer term, there is significant potential for impacts on the consumer side for beef demand, and that just comes down to $5 gas,” Peel said. “We’re already at record levels, and I’d be surprised if we don’t go to $5 a gallon at some point. Beef is the most expensive meat, and it’s fairly sensitive to gas prices in particular, that take dollars directly out of consumer pockets. Consumers aren’t going to quit eating beef, but they are going to start trading down or choosing different products a little bit to save money, so there won’t be as many high-dollar steaks sold. The net effect of that is that it takes value out of the beef industry. So there very likely will be some beef demand impact.”
Furthermore, pairing high input prices with drought is a recipe for extreme liquidation.
“I’ve been very nervous about the drought situation at this time of the year,” Peel said. “We’ve got about another month in the southern Plains before it starts to get really serious, so there’s time, but there’s really nothing in the weather patterns and the La Niña conditions that would suggest we could expect a change in that time frame.”
Prior to the war, the conditions were already setting up ranchers for significant insolvency and herd liquidation impacts because of drought and high feed prices, so the increases in grain prices will make it exceedingly more difficult for producers to try to respond to drought conditions.
“Producers will have less flexibility to buy feed and try to hang on cows,” Peel explained. “I hate the phrase, ‘perfect storm’, but there are a lot of things coming together at one time that will really be a challenge in the next three to five months, and that’s when we’ll see the real crunch happen if the drought conditions don’t change significantly.”
Peel said prior to the Russian invasion there was a lot of optimism surrounding cattle markets and prices were relatively good.
“Feeder and fed cattle prices have pulled back a little bit, but they’re still at pretty good levels, but now we’re talking about cost impacts as well as the drought, which makes cattle prices not matter so much,” he said. “Profitability is very different from price. Prices are good, so revenues are better, but if the costs go up, revenue obviously goes down or is erased. This puts an exclamation point or two or three on cost management.”
According to Peel, even if the war ended tomorrow and the Russians marched home, the ripple effect would be around for several weeks or months, and he has no expectation of it ending anytime soon.
“Who knows what Vladimir Putin is going to do, and that’s thing about this situation—there’s absolutely no predicting how this plays out,” Peel explained. “This is manmade, by one person, so it is impossible to have any sort of expectation beyond uncertainly and the markets are going to continue to operate with that in mind.”
His advice to producers right now is to be as flexible as possible and play it safe.
“This is certainly not a time to be doing anything adventurous. We need to be very much on defense and pull in our horns a little bit,” Peel said. “You want to monitor the situation, but at the same time, from a mental health standpoint, I don’t think you want to dwell on it, because it will drive you crazy.”
Lacey Vilhauer can be reached at 620-227-1871 or [email protected].
