Where is the cattle market- headed? I have been answering that question for 35 years but, I will readily admit Coronavirus or COVID-19 has now made answering that question completely different. And, I definitely cannot write my thoughts on the topic in the space of this column. So, I will attempt to reduce the answer to what I think are a few key factors that will be important to the market going forward.
First, a quick review of January and February is important. In terms of cattle supplies (both fed and cows) the difference between 2019 and 2020 is important – 3% more fed cattle and 4% more cows during January and February.
Steer carcass weights for those two months averaged 903 lbs. (a record for this time of year) against 883 lbs. a year ago. Heifer carcasses averaged 833 lbs. compared to 821 lbs. a year ago. Beef production for January and February was 5% higher than a year earlier. Pork production was up 7% for those two months. Fundamentally, those increased red meat supplies would be a problem.
So, now we add COVID-19 which has changed consumer behavior. It has fundamentally changed the U.S. economy and at this point, it may be difficult to determine for how long. The first question is when will life in America begin returning to some semblance of normal? I am not sure anyone can answer that with any certainty, but an assumption of late May – early June could be reasonable. From the standpoint of the meat industry, that would be at the beginning of the grilling season and seasonally increasing demand – normally.
This year that demand could also include pent up demand as people just want to just get out. Americans are not accustomed to “social distancing.” So, the next question concerns how current hoarding at the meat case to fill freezers will impact retail meat case sales going forward. How much beef, pork, or poultry will consumers still have in the freezer? They may want to buy fresh ground beef or steaks, regardless. I am not sure how that will take shape, but it is important. COVID-19 has totally changed purchasing behavior in the short term and perhaps, in the intermediate to longer term and perhaps, the pricing going forward.
Then there is the question of restaurant sales. That industry has been severely damaged. There will be a lag time to get those sales back once COVID-19 is behind us. Further, there may be more people who now feel comfortable with cooking at home more rather than going to a restaurant. In fact, there are many habits that might change.
It will likely be the fourth quarter or even in 2021 before we know the final impact of COVID-19 on the beef industry. However, there are still positive factors to support the market moving higher from current levels and well above the CME Futures market. The time frame is uncertain, but one thing is – we are definitely in uncharted waters.