R-CALF USA: Too many Black Swan events in under two years
Jody Heemstra, DRGNews (SD)
Apr 29, 2021
Pierre, SD, USA / Leaders of R-CALF USA are warning that the three Black Swan events their cattle markets suffered in less than two years are accelerating their industry’s trajectory towards vertical integration, not unlike the current state of both the packer-controlled hog and poultry industries.
A Black Swan event is defined as an unpredictable or unforeseen event, typically one with extreme consequences.
R-CALF USA Region III Director Brett Kenzy, who backgrounds and feeds cattle in south central South Dakota, said Black Swan events in the cattle industry occur when the cattle market goes in the opposite direction that market fundamentals would dictate.
“In less than two years, the fed cattle market took nose dives in response to major wholesale beef rallies. The first followed the August 2019 Tyson plant fire, the second followed the March 2020 outset of the pandemic, and the third is happening right now with boxed beef surging to $280 per cwt while fed cattle prices are falling,” Kenzy said.
R-CALF USA Region VII Director Eric Nelson, a cattle feeder in western Iowa, agrees. “Cattle prices plummeted in the face of each of those boxed beef rallies and those three events were distinctly marked by lower volumes in the negotiated fed cattle market, higher volumes of captive supplies held by packers, skyrocketing packer margins, and an industry undecided as to what, if anything, to do about it.”
R-CALF USA charted the course of those three Black Swan events in a slide presentation titled “Three Black Swans” showing the relationships between wholesale beef prices and cattle prices, and the relationship between packer margins and negotiated cash volumes. In addition, the slides show captive supply volumes in relation to cattle prices, and the relationship between surges in monthly beef imports and cattle price declines.
Kenzy said while other groups appear uncertain as to how to respond to these irrational market moves, his group has a definite plan...
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