Increased Uncertainty Clouds Cattle Market Optimism
The war in Ukraine has injected much uncertainty into global markets. Markets do not like uncertainty and much of the market reaction thus far is about uncertainty rather than reality. The majority of impacts thus far on cattle markets are indirect rather than direct beef market impacts.
Cattle markets are being impacted by the effect of the conflict on crop markets. Both Ukraine and Russia are major grain producing and exporting countries. With the reality of current disruptions of grain movement from the Black Sea region and the uncertainty of what could happen, crop prices have soared, pushing high feed prices much higher.
Just a few more weeks will determine whether crop planting in the Ukraine will be possible. All crop markets are higher, but the uncertainty is focused on the near term, pushing old crop futures higher relative to new crop contracts in the fall.
The most broad-based impacts relate to energy markets. Russia is a major oil producing and exporting country and potential disruptions in global energy markets are contributing to sharply higher energy prices. Russia is also a major producer and exporter of fertilizer. These will add to inflationary pressures for production costs and are a threat to beef demand as higher gas prices directly impact consumers.
At this point, direct impacts of the conflict on global beef markets are relatively small. Russia is the ninth ranked beef importing country but only accounts for roughly three percent of global beef imports. However, global beef market flows may be impacted more depending on how various countries are affected by the conflict.
All of these external factors combine with the looming threat of widespread U.S. drought on the cattle industry. In just a few weeks, the drought will begin to impact forage production and producers will face rapidly worsening production conditions and additional management and marketing challenges.
The supply fundamentals of the industry will continue to be supportive with cattle numbers decreasing and beef production declining this year. Beef demand has been strong up to this point but clearly there are more concerns about demand and input prices going forward. A war situation like this has no analog in recent history and there is no way to anticipate when or even if the situation will stabilize in the foreseeable future.
Producers have lots to watch in a very dynamic and volatile situation. There is little choice but to stay tuned and try to remain as flexible as possible.
