Large beef supply rising as COVID-19 dings demand


Lee Schulz for Progressive Cattle

24 March 2020


Schulz is Associate Professor, Department of Economics, Iowa State University


Why did April 2020 live cattle futures lose $10.675 per hundredweight (cwt) from Friday, Feb. 21 to Friday, Feb. 28? Why did it recover $3.70 per cwt over the next three trading days?


Why did it then skid $5.525 per cwt by week’s end (see Figure 1)?


Your crystal ball guess may be as good as mine. I may be being a bit facetious here. A market analyst’s job is to be able to tally this all up. Right?


However, how COVID-19, formerly known as the 2019 novel coronavirus or 2019-nCoV, will play out and how long it will take to come under control are unquantifiable. The cattle market fears the disease will spread and slow the global economy, which will trim beef demand. No one can predict the what/when/where of the next outbreak and its impact on cattle prices. Many wonder if the Monday, March 9 contract low of $102.85 per cwt for April 2020 live cattle futures was a major bottom. We cannot know that because of the unknown future impacts of COVID-19 among all the other factors impacting the market.


The fed cattle market is not alone


Feeder cattle, lean hogs, corn and soybeans are all down. Albeit at different levels and across different timeframes. All have incredible volatility, too. Our 24/7 news cycle makes sure markets have something to react to. Futures markets anticipate the worst or best. And in doing so, they sometimes overreact.


Stock market jitters and concern over national and global issues have recently dominated cattle markets. But staying in tune with the fundamentals is equally important. Supply and demand are the cornerstones to evaluate any market. Equilibrium among those two factors will find a price, even when a lot of noise exists around the price, as is currently the case.


Consider the price curve ...


Where is the market now? ...


Market fears current fundamentals ...


Contango and backwardation ...


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