Pandemic not affecting all cattle sectors equally

The beef industry has been walloped by COVID-19, but that whupping has left some parts of the system bruised and wailing while other parts are OK for now.

Who’s hurt and who’s fine could change dramatically, depending upon how long the crisis continues, say some analysts looking at the impact of the crisis.

“If markets continue to be depressed into the second half of this year, feedlots will take actions and dramatically reduce placements,” writes University of Alberta economist James Rude in what he phrases as “preliminary analysis” looking at Canadian beef market impacts from the virus.

“This will largely result in depressed prices for feeder calves, and the burden of adjustment will be passed further up the supply chain,” he says in COVID-19 and the Canadian Cattle/Beef Sector.

Meanwhile, U.S. feeder and fed cattle prices have bounced around like ping pong balls since the crisis struck, causing wholesale recalculations of present and expected profitability for the feeding sector.

“Unless fed cattle prices increase from their current levels, net losses in the second quarter could average more than $250 per head, with the largest losses expected to occur in May,” writes Michael Langemeier of Purdue University in Impact of COVID-19 on Cattle Finishing Net Returns.

“This is a shift in our net return projections for the second quarter of $260 per head!”

Economists do not normally employ exclamation marks.

The beef supply chain is a complex structure of independent parts, from purebred breeders to cow-calf farmers to backgrounders to feedlot operators to packing plants, processors and grocery stores.

The profitability often varies greatly between the various parts, but the differing situations have wildly and suddenly diverged during the COVID-19 shock.

Those situations are also not set in stone for the crisis, with the volatile dynamics of the disruptions to slaughter plants, food distribution and consumer income likely to keep the parts varying wildly as the crisis continues.

“Feedlot operators hope to buy feeder calves at a lower price and that the market will return to normal in six months,” said Rude, summing up the situation of feedlot operators this autumn.

Cow-calf producers are in the opposite situation — OK for now since they don’t have to sell calves, but fearful of the future market.

“Currently, their worries are six months away when spring calves will be taken to market.”

Trying to estimate prices beyond today is always a gutsy act, but the economists and analysts doing it today are both dreading and relishing the challenge.

They have to calculate consumer demand for expensive and cheaper cuts of meat, the ability of packers to continue processing during an extended series of shutdowns and slowdowns, and the responses of cattle feeders and cow-calf producers to the prices they see and expect. They also have to forecast the future prices of corn and other feeds, which is anything but clear.

That has most analysts repeatedly pointing out that their projections are highly sensitive to multiple impossible-to-predict variables about how the overall COVID-19 crisis resolves. More than any other factor, the length of the crisis portion of the COVID-19 situation will affect how the various parts of the beef chain are affected.

“Current break-even and fed cattle price projects suggest that large losses (for cattle feeders) will occur in the second quarter,” says Langemeier.

“Though highly uncertain, prospects for the remainder of 2020 look much better.”

Rude, looking at farmers’ situation, highlights the importance of the duration of the crisis.

“The impact on the cow-calf sector depends on how long the market disruptions continue,” said Rude.

“If the disruptions and a major recession continue into the fall, then ranchers will have to make a culling decision as calves are weaned and breeding decisions are made for the following year.”

How safe is the Canada-United States border for cattle exports? Will consumers permanently shift their demand for various types of beef and competing meats? Will slaughter and processing capacity be permanently reduced?

Those are all factors affecting different parts of the beef supply chain differently, and until it is clear how long the crisis will last, how badly it damages the meat processing sector, and how profoundly it affects consumer demand, economists and analysts are likely to be continually recalculating their projections for the situation in various links of the chain.

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