Fear

By Cassie Fish, http://cassandrafish.com

There is even more fear and hysteria in the cattle business today than yesterday. As futures leak lower and lower, observers are working overtime to create narratives to support the market break. With the market in its 10th week of decline, some veer further from logic and reason, repeating information out of context or not fully understood. Bearish ‘what if’s’ are popular as are embellishing stories with no facts. Positive news is overlooked, discarded in favor of a news bit that ‘fits’ the moment.

How does one make sound business decisions in this environment?  Cattle futures have already priced a 3 standard deviation cash price decline on March 16 based on the last 30 years of data. So far those lows stand. But the bears want more.

         The Fundamentals

A few small to tiny eastern packing plants- some kosher, some not and even a small cow and Holstein plant are experiencing short term interruptions in operations due to the coronavirus. Yet, the industry will still harvest between 670k and 680k head this week, which will either set a record for the largest kill in late March in history, or the second largest.

Boxed beef cutout values are finally correcting, down about $9 or 3.5% from the record high reached last week. Yesterday’s USDA Comprehensive Boxed Beef report saw another week of huge sales volume with exports and 22+ day sales picking up greatly and formula sales stay very strong. The jump in the weekly price pushed packing plant margins to their widest in history, beyond the level reached after the Tyson Fresh Meat’s Finney Country plant fire.

 

 

So what’s a packer to do? CME cattle futures ought to make it easy to buy cattle dollars cheaper. After all, spot Apr LC is more than $20 below last week’s 5-area average negotiated cash cattle price. Even with cutout values backing off, margins are still enormous. Thus far, packers aren’t bidding. What strange times these are.  

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The Beef is published by Consolidated Beef Producers

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