Page 24 - MWC 8-20-20s

MARKET REPORT The Midwest Cattleman · August 20, 2020 · P24
livestock and wholesale meat
LIVESTOCK
prices.”
continued from page 3
In a phone interview with Tonsor notes “the bulk of fixed costs they had before the
Feeder Cattle Daily
Live Cattle the cost wedge – the difference pandemic, with no revenue to
COVID-19” seeks to clarify Drovers, Tonsor said COVID-
the events that transpired 19 created some unprecedent- between livestock prices and offset those costs. Moreover,
wholesale meat prices – had
during the spring of 2020 and ed challenges for both produc- a lot more affect on wholesale two decades of Mandatory
why. Specifically, the authors ers and packers, and the three meat prices going up than it Price Reporting have given
sought to address the factors economists sought to explain did with cattle prices going the beef and pork indus-
that created confusion among why the markets reacted in down. The magnitude of the tries “lots more information
many industry stakeholders the manner they did. change was much smaller (on on prices” for animals and
over the extreme volatility in “The ability to run pack- producers) than on the elevat- wholesale meats, but packer
the markets for both cattle ing plants was notably con- ed meat prices.” costs remain proprietary in-
and wholesale prices. strained at the extreme,” The result, he says, created formation to each individual
The authors, Glynn Ton- Tonsor said. “They lost (up more pressure on meat buy- company.
sor, Kansas State University, to) 40% of their weekly pro- ers – retailers, consumer and “It makes it difficult to see
Jayson Lusk, Purdue Uni- cessing capacity. That creates exporters – than it did on the behind the curtain,” he says.
versity and Lee Schulz, Iowa what we call a cost wedge – sellers of livestock, though he The authors note concerns
State University, say their it was more expensive to do is quick to acknowledge that about “concentration and al-
paper notes “the difference anything in that sector – and is not to deny the extreme vol- legations of anticompetitive
between price spreads and not surprisingly, that resulted atility producers experienced. behavior have led to several
civil suits and inquiries by the
Live Cattle: My thoughts center around this market stabilizing now. I’ve been
marketing margins, outlines in more expensive wholesale Feeder Cattle: All you have to do is look at the corn market for a reason for the
placing a bullish tilt to this market for some time now. I may need to temporarily Tonsor also noted the econo- U.S. Department of Agricul-
pull-back in feeders. If I owned a feedlot I’d be nervous to say the least. I do feel
corresponding economic theo- beef prices and lower cattle
place this on “hold” for a while. The higher placements the last three months will mists sought to examine the ture and the U.S. Department
the feeder market has overdone it to the downside and it will be tough to break it
ry, and describes the empirical prices.”
have a negative impact on prices yet, so like they say, “All good things come to those margins packers saw during of Justice, with increases in
further. The early corn harvest has most feeder buyers in the field and I don’t think
evidence on wholesale meat
The authors note in their
who wait”. I see production numbers staying over last years’ levels until at the the height of the pandem- price differentials serving as
they’ve really had time to concentrate on buying feeders. Let’em get caught up a
and livestock price dynamics paper that beef and pork
little and they’ll head to town.....checkbooks in hand....bulging with “corn” money.
least the end of the year. Beef shipments have been lagging last years’ levels now ic, but admits it is a difficult
in the wake of COVID-19 dis- packers were both operating
This market will rally....wait and see.
for about a month. Two weeks ago they were 8% lower than last year. This weeks task. a focal point.”
at 60% of the previous year’s
ruptions.”
report showed exports a whopping 56% lower than last year. This ain’t good. Low The authors conclude their
imports and high exports have held this market up all summer. We’re starting to “We know that packers’ paper with some discussion
The authors acknowledge volume at one point. That’s a
lose some of that. I just can’t pull the trigger yet on long term bullish hopes. costs went up,” Tonsor said. around policy proposals that
the “controversy surround- “massive supply shock” that
ing wholesale and farm-level would be expected to affect “But there was massive confu- would pit industry concentra-
sion over their gross margins,
price movements following a marketing margins. The econ- which did not account for in- tion against industry coordi-
Trading commodity futures involves substantial risk of loss
and my not be suitable for all investors. The recommendations
packing plant fire in Kansas omists also document how creasing costs and reductions nation and economies of scale.
Rich Nelson
express opinions of the author. The information they contain is
Allendale Inc.
was but mere prelude to the margins measurements are in volume.” obtained from sources believed reliable, but is in no way guaran-
Allendale Inc.
unprecedented COVID-19-re- “critically sensitive to selec- teed. The author may have positions in the markets mentioned
815-578-6161

including at times positions contrary to the advice quoted herein.
The reductions in volume
rnelson@allendale-inc.com of animals processed meant
Opinions, market data, and
lated disruptions and histor- tion of data and information
recommendations are subject to change at any time.
What Does this Report Mean to Me?
ic rise in the spread between utilized.”
packers had some of the same
Q #1
BEEF DEMAND year over year. In the first
half of the year, the dramat-
What do you think the price of fats will be in April 2011
continued from page 6
ic drop in GDP and increase
Answer: It’s hard to see the forest for the trees here, but peering through the foliage I see $105.00 fats on the horizon for April. Demand is
recession and will be for the
in unemployment did not cor-
going to have to kick in though in order to get it.
balance of the year and like-
respond directly to similar
ly into next year. Unemploy- beef demand impacts because
Q #2
ment peaked at 14.7 percent federal stimulus and unem-
Due to the recent break in feeders, would you be holding your fall-weaned
in April before declining to
ployment benefits partially
calves for a while or letting them go?
11.1 percent in June. Unem-
offset direct negative eco-
ployment is expected to de- nomic impacts on consumers.
Answer: What ever happened to the easy questions? This will depend upon your weaning sched-
cline but will remain elevated
Macroeconomic conditions as
ule and your available feed supply. I’m long term bullish the feeder market but the “reality” of
in the second half of the year.
well as the status of econom-
right now probably dictates letting them go. If you keep them for an extra 30 days, make sure you
GDP is projected to be lower
ic support will play a key role
for the remainder of the year
minimize the grain in the ration. Grow them on good forage....”sell” $4.50 corn. If the fat market
in overall beef demand going
with annual estimates down
forward.
stays sluggish and corn prices don’t moderate, about the only thing you’ve got to hang your hat on
in a range of 6.5 to 8.0 percent
for “higher feeders” is “Hope”.
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Call or E-Mail for Catalog Email: reynoldscattle@cvalley.net