Beef comes back from 2020 challenges
Oct 14, 2020
Shocks to the beef industry were all part of 2020’s “unprecedented” theme, but how the market responded was less surprising.
Dustin Aherin, the animal- protein vice-president and analyst for Rabo AgriFinance, a RaboBank subsidiary, addressed those ideas at the virtual Certified Angus Beef 2020 Feeding Quality Forum.
Cattle, labor, physical capital and technology comprise the beef-production equation, he said, according to a CAB news release. When any of those fall out of balance, it’s communicated through prices.
The 2019 Tyson packing-plant fire and COVID-19 both threw the equation off, but with different effects. Where the Holcomb, Kansas, fire caused some destruction at one plant, the coronavirus pandemic brought changes in human health, plant adaptions and new technology across the entire supply chain.
“Looking at what happened here in 2020 with an extreme increase in fed-cattle supplies and given the backlog the collapse in prices really wasn’t unexpected,” Aherin said.
The escalating disasters highlighted the tightening capacity at packing plants, especially in the past five years. When there aren’t enough resources to turn cattle into beef it’s difficult to put a good value on those animals. That’s what happened, but why requires a deeper understanding of the financial environment, he said.
The pandemic created a “risk-off environment,” Aherin said. That caused investors to pull cash out of the market and put it into assets perceived as safer.
“In such a high-risk environment it’s really difficult to motivate buying in the live-cattle- futures side of the market,” he said.
Studies show small changes in beef tonnage result in large price changes, he said. The temporary plant shutdowns, labor challenges and the rapid shift from food service to retail caused major changes in beef availability. As painful as it was for cattle producers, the prices and magnitude of changes were in line with research models.
Agriculture often deals with heavy blows...