This week's essay, plus today's daily blurb, is worthy of full inclusion... ---------------- The JBS Greeley plant joined a Smithfield SD pork plant and a couple of smaller beef and pork plants to close. Tracking the plant slowdowns is more difficult. The JBS plant is set to reopen next week on April 24th. The other closed plants have no firm reopening dates but are temporarily closed. The only reliable gauge of damage to slaughter volumes is the USDA daily slaughter report where volumes are compared to prior week and year. Government officials are rushing to deliver virus testing kits to meat plants. Many workers are reluctant to go to work for fear of infection. Moreover, union officials are presenting another pressure point as they negotiate with the processing companies. Local health departments are joined with state and national health representatives overseeing the safety of the plant workers. The key to restoring normal volumes in the beef plants is the same requirement for reopening the economy --- testing, testing, testing. The issues are similar at almost all meat processing plants across the nation. The objective is to keep plants open and operating at near capacity. The requirement is providing a safe workplace free of the coronavirus. Maintaining the food supply chain for supermarkets is especially important because of restaurant shutdowns. The plant shutdowns and slowdowns will pressure all points in the beef pipeline. Feedlots will struggle to find kill slots. The cattle offered in the cash market will find few buyers. Feedlot purchases of replacement cattle will be placed on hold and cattle on pasture will stay a little longer. Planning and reshuffling of schedules will be on everyone front burner. This emergency will have a short shelf life and solutions will be rapid in development. Processing plants are a natural environment for a virus hotspot. The remedy is testing and recruiting. The available job seeker pool is large. Retraining takes time but in days and not weeks. Many absent workers are ready to return when they believe the workplace is safe. In the meantime, some fabrication work can be passed along down the line to the supermarkets. Cattle traded this past week at mostly 105 to $106 live and $168 dressed. Late sales moved higher to $106 in Nebraska. Asking prices will be higher this week. Cattle Futures. Live cattle futures closed up three dollars. There are market moving developments constantly in the marketplace. Few of those developments are released by any unified source and often industry participants find out about market moving news after the fact. Chances are good if futures move up or down the limit on any given day, there is something driving the direction. You might be a health official who has become aware of a hotspot in a beef plant of infections or you may be a union officer who is negotiating a plant closure or reopening. Or you might be a supermarket executive finding a gap in the supply chain. All of these pieces of information are not insider information, but in the right hands, are market moving. Sometimes industry participants become puppet players in a staged play they are not even aware is taking place. The recent volatility in futures prices has seen a record number of days when futures have either been locked limit up or limit down. Periods of uncertainty have always plagued the commodity markets but the recent coronavirus crisis has outstripped any previous market moves. Forward Cattle Contracts: The price decline in the futures market has slowed forward contracting of fed cattle. Only a trickle of cattle are sold for forward delivery. The Cutout. This past week's slaughter of 536,000 head was well under prior week and year and this week will be lower still. Box prices are moving higher as fears of shortages mount. Beef Feature Activity Index. Retailers are struggling to make firm plans for protein offerings in the nation's meat counters. Eating at home changes the demand for certain cuts of beef. The end meats along with hamburger find healthy demand while the middle meats struggle to find an outlet until the outdoor grilling season starts next month. Replacement markets The beef pipeline is designed to give price signals at every transfer of ownership point. Apart from weather, these price signals govern the flow of cattle through the pipeline and indicate when the nation herd needs to grow or shrink. The price points also serve another important role of stabilizing the price of beef in stores and restaurants. Erratic and volatile price moves turn off consumers and make meat dealers nervous. The recent market moves stress those handling cattle but they also threaten an even flow of cattle throughout the beef pipeline. Many cattle will be forced off pasture in May. May is normally the end of the winter grazing season across the southern plains and in the south. Winter grain fields mature and grazing ends. The bunched up groups of cattle that have not moved in March and April, have been pushed to May but few people are able to hold them past. Lender woes are transferred to cattle owners as large changes in the borrowing base or inventories of cattle stress the equity base of the industry. Cattle financing is always important to cattle owners and some breeders and stocker operators are evaluating retain ownership options into the feedlot. Rather than accept distressed prices for replacement cattle, some will choose to feed the cattle. Unfortunately, they will be faced with cautious lenders who already are plagued with cattle loans with inadequate margins and large losses. Even feedyards that always provide financing are growing cautious both in evaluating the value of the cattle coming into the yard and establishing monitoring of their value on a weekly or monthly basis. Finding a price point for transfers of cattle ownership is become a task fraught with peril. The traditional bicker of trading in .50 increments is quickly becoming replaced with prices that can vary $5-10 in a day. Some feeder cattle auction markets last week reported prices $15-28 lower. Navigating through this type volatility is nerve racking on both the buy side and the sell side. Small business loans, that can be forgiven, are being funded daily and allow qualified beef producers to participate. BOC Bank in Amarillo, Texas has streamlined the application and funding process making everything available online. Click on the link. Oklahoma City. Receipts were half of last year. Prices were $3-5 lower. Feeder Cattle Futures. Feeder futures opened down the permissible limit. Feeder Cattle Cash Index. The index is tracking the moves down in cash prices. Forward cattle contracting. Forward selling has slowed or stopped as buyers and sellers evaluate market conditions. Grain Futures. @TraDaToR Corn prices have flattened out. The size of this year's plantings will be closely watch as will planned use by the protein providers of the nation. The corn basis is weakening at 60 over the May board in Guymon, Oklahoma. Corn is now pricing into ration at $7.25 cwt. in the Oklahoma Panhandle. GETTING BY WITH A LITTLE HELP FROM MY FRIENDS The beef industry has always prided itself by remaining free from government help and subsidies. For the most part this has been true, even though cattle owners purchase grain kept low by government support programs. The stressors to the live sector of the business from the Coronavirus has imperiled many of the operations across the country. The past two years has included the Chinese trade wars, the Tyson fire and now the pandemic of COVID-19. Multiple payments to farmers and pork producers during the Chinese trade wars helped defray the low prices for our farm products. The beef producers were left out of these programs. The live sector of the beef industry is now faced with marketing cattle in the immediate future at 40% discount to pre-virus price levels. The processing plants are impaired and operating a diminished capacities or not at all. The damage is not uniform across the industry. Processors prior to the plant problems have held on to hefty margins at the beef plants. Many of the large feeding companies run fully hedged programs and any hedged operations are receiving windfalls with the large positive cash basis. Hedged operations are not the enemy and their successful choice of operating modes provides stability to the industry. Within the unhedged portion of the industry, there is much financial pain and some operations are threatened with shut down. There are many differing business plans but all unhedged operations are suffering. Some operations hedge sometimes and some hedge a certain portion of inventory. Some jump in and out of the market trying to guess the highs and lows of prices. Others simply use price averaging and purchase cattle year-round taking the highs and lows into inventory. There is no correct way and each model must fit into a risk parameter for that operation. There are rumors across the internet of help on the way coming from the President and the cattle associations. For those with unprotected inventory and a June futures board in the mid 80s and headed south, the looming threat of financial damage is large. Unemployment numbers jumping into the double digits and pose a serious threat to demand for beef but layered on top of that, the shutdown and slowdown from the processing plants, and you have a disaster. The current crisis is certainly a calamity akin to a hurricane and our country has always provided assistance to “act of God” events that befall parts of the economy. Judging who to help, and how to help, is not easy business. Even after agreeing to include a certain class into an assistance program, administering the program is difficult. People always stand ready to defraud the government by gaming the programs. Moreover, auditing the records of each operation to prevent duplication or fraud would be a challenge. ------
Today's blurbs... Tuesday morning all ag commodities crashed putting on full display the chaos in the marketplace and the full knowledge that reopening the economy is not going to be easy or quick. The announced closure of one of Canada largest beef plants threatened a true North American processing challenge. The closure reduces Canada's processing capacity by one third. The temporary closure is expect to last two weeks. Producers of fed cattle are anxious to see if last week's 503,000 slaughter established the low baseline for rebuilding slaughter to a 600-625,000 necessary level. Three weeks of diminished capacity are taking a toll. Panicky retailers jumped boxed beef prices $10 higher. Feedlots with finished cattle to sell were without a kill slot as formula and contractual obligations fill all the current capacity. Cash markets disappeared. Those in the pool waiting to find a kill slot are left to outbid each other with the lowest available price in an attempt to find an outlet for cattle. The processors are working diligently to secure a safe workplace and award plant workers with extra pay and improved protections from the virus. Attention at all processing facilities will concentrate on temping, testing, providing PPE, spreading distances between workers or using plexiglas panels, and most of all, providing an environment of caring about the health and well being of the plant workers. News stories assure consumers the processing slowdowns across the entire range of ag food products will not result in shortages but it can not keep from resulting in shortages. A 500,000 head slaughter week does not provide the marketplace with the 600,000 needed to satisfy beef demand. The industry lost 100,000 head of beef sales last week. Cattle Futures. There is little clarity for traders to latch on to in the cattle arena. The prospect of no cash market or a fake cash market leaves uncertainty as the driver for price moves. The result is chaotic and volatile moves that have little foundation for logical analysis. The market is trading almost $15 under the most recent cash with expiration just around the corner. The futures don't believe the cash and the cash doesn't believe the futures. Neither market is working. ... Forward Cattle Contracts: The price decline in the futures market has slowed forward contracting of fed cattle. Only a trickle of cattle are sold for forward delivery. ...The short supply of workers in the nation's beef plants has resulted in some changes to the beef products coming out of the plants. Fabrication lines are redone and cuts are modified to allow more throughput with less people. One helpful change is to produce more grind with the end cuts. Beef Feature Activity Index. Retailers are struggling to make firm plans for protein offerings in the nation's meat counters without confidence in the supply chain. Much of the movement of boxed beef is sold on formula to retailers. Those commitments are contractual obligations, that given the plant problems, will not be met or will only partially be met. The beef pipeline is designed to give price signals at every transfer of ownership point. Apart from weather, these price signals govern the flow of cattle through the pipeline and indicate when the nation herd needs to grow or shrink. The price points also serve another important role of stabilizing the price of beef in stores and restaurants. Erratic and volatile price moves turn off consumers and make meat dealers nervous. The recent market volatility assures there will not be an even flow of cattle throughout the beef pipeline. Many cattle will be forced off pasture in May. May is normally the end of the winter grazing season across the southern plains and in the south. Winter grain fields mature and grazing ends. The bunched up groups of cattle that have not moved in March and April, have been pushed to May but few people are able to hold them into summer. Lender woes are transferred to cattle owners as large changes in the borrowing base or inventories of cattle stress the equity base of the industry. Cattle financing is always important to cattle owners and some breeders and stocker operators are evaluating retain ownership options into the feedlot. Rather than accept distressed prices for replacement cattle, some will choose to feed the cattle. Unfortunately, they will be faced with cautious lenders who already are plagued with cattle loans with inadequate margins and large losses. Even feedyards that always provide financing are growing cautious both in evaluating the value of the cattle coming into the yard and establishing monitoring of their value on a weekly or monthly basis. Finding a price point for transfers of cattle ownership is become a task fraught with peril. The traditional bicker of trading in .50 increments is quickly becoming replaced with prices that can vary $5-10 in a day. Some feeder cattle auction markets last week reported prices $15-28 lower. Navigating through this type volatility is nerve racking on both the buy side and the sell side. Small business loans, that can be forgiven, are being funded daily and allow qualified beef producers to participate. BOC Bank in Amarillo, Texas has streamlined the application and funding process making everything available online. Click on the link. Oklahoma City. The pressures of empty pens and the prospect of reopening the economy helped move replacement prices sharply higher. Feeder Cattle Futures. Feeder futures lost over a dollar as uncertainty remained in the market. ----------------- Weekly blurb... NOTES TO THE CANADIAN INDUSTRY PROPOSAL The Canadian cattle industry is much smaller than ours, but the problems are the same. The cost estimates provided in this report can be multiplied by 10x to scale to our size. This plan has been implemented when the mad cow crisis hit Canada and cattle destined for U.S. plants were forced to be slaughtered in Canada with insufficient processing capacities. This set aside program addresses major problems we are currently facing. The nation's meat processing plants are first a pressure point for the spread of the virus. The health of these essential workers must be protected as they execute the critically important task of providing a steady and reliable food supply to our population. Health officials working with company management teams can provide the necessary support for keeping the plants open and functioning at near capacity during the crisis. Meanwhile a mitigation plan is necessary to provide an orderly flow of finished cattle to the processing plants. Because the pool of available cattle is larger than the processing capacity that has been diminished by the virus, some producers should be accepted into a 60 day maintenance plan for the cattle. This will remove the oversupply of fed cattle from the market and re-establish balance between supply and demand allow normal pricing to be discovered. Those producers entering the program would be reimbursed by the government for the maintenance ration cost for the 60 day period.
Daily blurb from today... The task of reopening the economy can only be described as fragile. Avoiding a second wave of the virus will be treading in unknown waters. Also unknown is the demand for beef once normalized slaughter volumes are restored -- still a ways away. Unemployment is high and will get higher before it is over. The WSJ reported this morning that some factories will never reopen. The virus will leave a permanent scar on our business and the economy. The beef industry will review an over-reliance on mega-plants and labor. The week ended with packers re-entering the market to post $115 purchases across all regions. This left cash prices in a range of $95-115 and dressed sales from $145-180. There is no theory of pricing that can ever explain these prices. Sometimes prices at the ends of the trading range occurred on the same day within minutes of each other. It is certainly not the result of negotiation and/or price discovery. The positive signs were an improvement in the daily slaughter numbers. This past week posted a weekly total of 452,0000 head -- up from 425,000 the previous week but far short of the 667,000 of last year. The trip back to normal volumes will not happen overnight but will be slow and hopefully steady. Processors plan to continue the improvement this week. The incentive to process beeves has a calling card to catch the eye of any arbitrageur. Some simple math will tell you the value of a 900# steer carcass @ $4.60 is well over $4000. The cost of a 1400# steer @ $115 is $1600. Can anyone figure out how to process a steer for less than $2400? Lots of students of business should be directing their attention to this opportunity. The fantasy of cattle owners is to subtract a normal processing margins from the selling price based on the cutout and assume the producer receives that amount for his fed steer. This calculation would be $4000 less an estimated processing cost of $200+ dollars, a normal profit of $100, to reach $3700 divided by 1400# = $2.64 live price. The implications of dealing with a backlog of 1 million overfed cattle will hang over the market for the balance of the year unless the supply/demand balance between fed cattle and beef demand is restored. News stories over the weekend highlighted the plight of the cattle owners. There can be no cash market for cattle when there is no bargaining leverage and cattle owners have lost any leverage. President Trump tweeted that the government will be purchasing $3 billion of meat and produce from farmers. This would not help beef producers today because the plants don't need more demand today, but they will need lots of help working off the backlog by restoring slaughter volumes and at the same time creating a market for the excess beef. ------------------- The weekly blurb... The various signposts were positive. The States were reopening or at least most of them. Businesses were in varying degrees of restart. Traffic was returning to the highways and the entire country had a feeling of rejuvenation. Statistics from the damage from the coronavirus were still in the news but headlines pointing to 15% unemployment rate were not enough to stop a stock market rally that has some of the indexes in positive territory for the year. News in the beef business echoed the optimism of the other markets. Processing plants were regaining lost volumes even though the progress was slow and a long way from normal. People were clamoring for beef and despite shortages in the stores, most consumers tucked a couple packages away for quick consumption. Some of the cash prices for fed cattle, that traded down into the 80s a couple week’s ago, were now recovering. Last week range of $90-105 was replaced this week with transfer prices from $95 to $115. Stocker and feeder prices were higher in all markets. Some operators felt $125 was right around the corner and the backlog would work off and soon be history. The big picture was far from rosy. Packers are under the gun and the subject of scrutiny from the DOJ, USDA Packers and Stockyards, and Attorney Generals from 11 States investigating charges of price fixing, collusion, discriminatory purchases, and other charges too numerous to mention. They are attempting to demonstrate the cash prices paid to producers for cattle are following the movement higher in box prices. For those who believe the backlog is not that big or can be worked off quickly, the numbers contradict that notion. One reliable number published daily by the USDA is the daily slaughter. Any simple analysis of the current slaughter when compared to prior year will confirm a backlog soon to be 1 million head. Add to that number the cattle reaching slaughter finishing weights each week and you find an overwhelming number of cattle to work through to return to normal flows. Once the processing plants have returned to normal volumes, there is a large question mark about beef demand. The more than doubling of the cutout in the past three weeks, does not mean beef demand is excellent, it simply confirms the elasticity of demand, and the dire consequences of 1/3 less beef. The return to normal slaughter volumes will find a weak economy and 35 million people out of work. This economic weakness will be mirrored around the world. Absent the support the packers have been providing to the cash market, a free market would be disastrous for cattle owners. Owners of backlogged cattle would compete with each other, to drop asking prices to any level to secure a slaughter slot. Weak demand for beef would send box prices sharply lower in a never-ending downward spiral. Cattle owners are left with picking the best choice of a lot of bad options. This choice is the Set Aside program and government intervention to purchase and move beef out of normal channels.
Daily blurb of note... Today, the House of Representatives released the draft text of the “Health and Economic Recovery Omnibus Emergency Solutions Act” or the “HEROES Act”. The 1800 page bill will serve as the opening marker for negotiations with the Senate on the next round of COVID-19 relief. While we are still drilling down into the specific provisions of the bill, here are the top line details : · Establishment of a statutory dealer trust for livestock · Emergency Assistance for Market-Ready Livestock and Poultry Losses (excluding packer-owned animals). Effectively a depopulation support mechanism for all livestock and poultry. · Additional support for dairy, specialty crops, and local agricultural markets · Support for Farm Stress Programs via state departments of agriculture to expand or sustain stress assistance for individuals engaged in farming, ranching, and agriculture-related occupations · Renewable fuels reimbursement program · Direct payments to agricultural producers – appropriating an additional $16.5 billion to the pending CFAP program with an extension for compensation for 85% of actual losses through the 2nd Quarter of 2020 (this would effectively supersede the rumored April 15th cutoff we’ve been discussing for the past few weeks). · Amendments to the Commodity Credit Corporation to allow for expanded use of funds and additional oversight of any such expenditures by Congress. More to come on this. · Emergency Soil Health and Income Protection Pilot Program (voluntary program to “allow eligible land to be enrolled through the use of contracts to assist owners and operators of eligible land to conserve and improve the soil, water, and wildlife resources of the eligible land.” This past week ended with packers re-entering the market to post $115 purchases across all regions. This left cash prices in a range of $95-115 and dressed sales from $145-180. There is no theory of pricing that can ever explain these prices. Sometimes prices at the ends of the trading range occurred on the same day within minutes of each other. It is certainly not the result of negotiation and/or price discovery. The positive signs were an improvement in the daily slaughter numbers. The first day of this week also topped last week by over 10,000 head. Last week's weekly total of 452,0000 head -- up from 425,000 the previous week but far short of the 667,000 of last year. The trip back to normal volumes will not happen overnight but will be slow and hopefully steady. Processors plan to continue the improvement this week. Currently there are a lot of plans on the table for those in the live sector of beef production to emerge from this disaster. Finding and drafting plans is difficult and many times views from participants, who all have their own individual perspectives, become diluted in the final draft of proposals. Most cattle operators are independent types and finding consensus is often difficult. Once there emerges consensus on a plan, getting support from government and industry creates another layer of difficulty. Cattle Futures. Cattle futures surged higher as demand for beef continued strong accompanied by strength in the cash markets. The front two months closed limit up. ------------------------ That last bit really bugs me. I have been watching and watching, but afraid to dip toes in. The drop starting from noonish on Friday into yesterday's close, about 6 points, ($2400 drop per contract) had me doubting myself. Welp, it's only 1 point away from that peak now. Are we going to see pre-COVID levels of ~125 by August expiration? Mreh. Cows, cows, cows!
Hey, don't shoot the messenger! I repost only what the agcenter posts. :-\ The author is obviously talking not about prices of the future, but something else regarding dressed or box prices.
Cows closed (or at least hit) limit up again. :-( I keep dicking around in equities when the obvious is obvious. Alas.
From today's blurb... President Donald Trump said on Tuesday the United States should consider terminating trade deals under which it imports cattle as he looks to help U.S. ranchers hit hard by the coronavirus outbreak. The President seemed to be referring to live cattle, but addressing this issue, raises an important pathway for dealing with the glut of cattle ready for the beef plant. The U.S. should wait until the end of this month when plants have restored much of the slaughter volumes and restrict beef imports. The United States imports almost as much beef as it exports but the profile of the type of beef is entirely different from exported beef. We import mostly lower quality beef often used in the grind while the export market is for high value cuts. Widespread testing is resulting in large spikes of new cases and continuing to threaten both the worker health and meat plant attendance. Fortunately, many of the positive tests are asymptomatic and create after a quarantine, an employee able to enter the work force without fear of illness. Many plants are removing employees over the age of 60 and putting them on paid leave. Promising news of a vaccine offered optimism to the country. Cattle Futures. Cattle futures maintained the same trading pattern of support for the nearbys and hedging pressure on the deferred contracts. Traders will be wary of entering the long side of this market knowing packers may discontinue supporting the cash trade at will. Indeed, the bolded bit is reflected in the current backwardation of the LE contract during the roll.
Interesting snippet from today's daily bits... Social distancing in the plants has slowed chain speeds on the kill floor and conveyor speeds in fabrication. Returning plant workers will be reassigned positions and PPE will be in place in most plants. Additionally, the size of the Saturday slaughter volumes will determine the total weekly slaughter number. There will be some calling for plants to open on Sunday but without an outlet for the meat, it is doubtful that will occur. The first digit for box price cutout is now a 2 quickly replacing a 4 when box prices reached $475 -- an all time high. As slaughter volumes increase pressure will continue on prices until they reach a point when lower beef prices stimulates demand. Key will be the decision by retailers to start increasing inventories and featuring beef specials. A troubled economy, high unemployment and uncertain consumer demand will all determine the proper price level and cattle owners with burdensome supplies, will be at the mercy of the marketplace. Yeah, the bolded bit above? Mother F retailers...Why am I seeing 85/15 mix of ground at $4.19 a pound at the grocer!? When LE dropped to under 80 per, we saw NO drop in prices. Some of dem retailer/packers saw some great margin improvements. Gouging jerks. ------------------------ Replacement markets There has been a sharp and steady improvement in replacement prices and cattle movements to market. The same back up occurring in the nation's feedlots is replicated in the country where replacement cattle have also increased in number. The number of cattle outside feedyards is sharply higher and those cattle will be placed in the next few months before the extra large fall run. Pricing will trickle down to breeders by fall but without the tools necessary to forecast beef demand, much of the pricing will be guesswork. USDA reports a mid year cattle inventory number and this year it will be closely watched but it may be pre-mature to make judgments based on the reported numbers. One of the impacts of the coronavirus will be changes to the size of the nation's breeding herds. Many breeding decisions are based on confidence in the future and there is very little confidence throughout the beef industry regarding the future. The virus will leave a permanent scar on the market that will be felt for years to come. Vulnerabilities in our futures markets, our cash markets and our ability to process our production supplies all weigh on concerns for the future. It is unlikely the report will reflect much that is on the minds of producers. Those concerns will determine decisions they will be making the balance of this year and next. Cattle operators interested in planning for a profit were most interested in lighter weight cattle. The lighter the weight, the more time to allow markets and the economy to recover. Time is the friend of cattle operators with outside cattle and the enemy of those owning cattle on feed. Stocker and feeder operations can hope by the time they are forced to market that markets will normalize while cattle feeders are faced with immediate problems and few solutions. No one has a crystal ball about future prices, but everyone has a reasonable notion that things a year from now will be better than they are today.
Bold statement on this week's blurb at the very bottom. And the bolding below is not mine, heh. THE SPIKE HAS SPOKE AND THE CONSUMER HAS WOKE "As slaughter volumes have returned to near normal levels, box prices have now completed the sharp spike up and the sharp spike down. Prices in the low $2 level will be the foundation for discovery of a trade price level that will balance total beef production with total beef demand. No one is able to forecast that price level until the market tests the elasticity of demand at various price levels. Many complex forces are currently at work in our economy and navigating through the excess of fed cattle will be in uncharted waters. Key to price discovery will be the consumer who is asked to be "woke" or sensitive to the environment, race, and health. The Dietary Guidelines Committee will submit its draft recommendations for diet to the Secretaries of Agriculture and Human Health this week and the role of red meat is front and center. Dietary guidelines are critically important not only to individual consumer choices about what to eat, but they control larger policy based decisions about choices by governments of what foodstuffs to select for school lunches and feeding our military and other outlets such as food banks. The recommended consumer diet has been a battleground for debates over our future food choices and human health. Plant based protein manufacturers have suggested non-meat diets are more friendly to the environment and are positive for reversing global warming. It is important for respected nutritionist to weigh in with valid arguments enforcing the value of red meat to human health. The adopted dietary guidelines form the nucleus of recommendations for years to come. The problems at the beef plants resulted in lost beef sales and changed eating habits. Consumers were forced to chose alternative food fare either because the beef products they wanted were not available or were too expensive. The beef industry wants those consumers back and must make marketing efforts to bring them back either with beef features and special prices or marketing compaigns emphasizing the health benefits of beef. The next two months will be an important proving ground for a return of valued based beef products. Price is always a threshold for attracting interest from consumers and visibility is also important. The message is clear: BEEF IS BACK."
This week's blurb... "Whether you are the manager of an independent store or a multi-store supermarket chain, the decisions required this year have been unprecedented in meat retailing history. Supermarkets and meat marketing plans are generally established weeks or months in advance and over time are slow to change. The changes that occur are generally reactions to price changes and are small and subtle. This year nothing is small and subtle. Everything comes in elephant sized helpings and the problems are complex and sometimes overwhelming. Everything starts with purchasing and delivery. Purchases are generally divided between formula purchases and spot purchases with formula over half of all purchases. Delivery dates and quantities are relied on for efficient execution of marketing plans. The first wave of problems occurred when the virus hit and stay at home orders were issued causing consumers to stock up and make a run on grocery store supplies. This created the need to jump into the spot market for extra meat needs and those were not always available. The next wave of purchasing problems were caused by the processing plant slowdowns or shutdowns. Contracts for purchasing were not fulfilled and force majeure clauses invoked. In both instances, stores were not able to keep products on the shelves and satisfy consumer demand. Delivery logistics were also disrupted with failed and modified delivery schedules, a daily occurrence. Pricing the products became a nightmare. Traditional price changes are usually small and incremental. Sharp spikes up or down are bad news for market managers and their feelings are joined by consumers who react negatively to increases but never notice decreases. A common practice is to slow the price movements up and down in order not to alarm consumers. A doubling of beef prices in a matter of a few weeks can not be ignored or slowly compromised in pricing increases. Managers were faced with on the fly decisions about pricing and no two stores followed the same path. Similar problems are occurring now as prices fall back to pre-virus levels and below. Diversity of beef cuts has also undergone a change during this crisis period. As plant processing volumes declined, the processing firms varied the cuts in the fabrication areas. Less end meats were cut and more of those muscle cuts were tossed into the grind where less labor is required. The idea was to keep some beef available on store counters. Likewise, as more normalized slaughter is returned, retailers will be working with processors to provide more affordable selections on the meat counter as out of work consumers struggle to keep beef choices in their budget. The brunt of the damage falls on the livestock producers. Consumers can simply choose not to buy. Beef producers are harmed by lost sales during the periods of shortages caused by plant slowdowns, but more importantly they suffer from a loss of leverage in trading with processors for months to come. Built up supplies provide the packers with the leverage necessary to trade cattle on their terms and not those of the sellers." And then there was this... "Futures prices were sharply higher Wednesday as expectations for higher cash develop. Hedged owners of cattle will watch for signs the negative basis will improve with cash prices. Index funds [longs] have moved out of the August contract and into the October." Shit yeah...It pretty much closed at limit up. That's some fun price action right there.