The cattle market evolves, sometimes abruptly in response to dramatic events. Effects of the COVID-19 pandemic were foreshadowed late last summer.
“We obviously have short run impacts, like the fire in Kansas in August of 2019. What that really illustrates to me, is just how vulnerable in some sense that we are in this industry to that supply chain that’s out there. It’s a perishable product we’re moving. If you take an average of annual production, over 500 million pounds of product a week through this industry, and any sort of significant and unexpected disruption like that causes major market reactions,” says Derrell Peel, Extension Livestock Marketing Specialist at Oklahoma State University.
Based on a single location then, and greatly magnified this spring system wide, chaos entered the cattle markets.
“It generated a lot discussion obviously about what happened both on the wholesale meat side, what happened to cut out values and implications for packer margins at least for a brief period of time as well as on the supply side in terms of fed cattle. So, it did a lot of things that people talked about,” Peel says. “It also illustrated very well how markets work, and markets will fix a very severe shock like that. But sometimes the way it gets done is in a way that we’re not really very happy with.”
As Congress looks into legislation to address the unhappiness, Peel says there are still bright spots in the market, from exports to quality improvement and new products.
“People that had never used Prime now found that it was available and so you saw some changes there. The Choice-to-Prime spread got narrow for a while when there was a lot of supply of Prime. But then again other people sort of jump on it and some new markets develop that really didn’t exist traditionally. And so again, those are all the kinds of dynamics that really play into this broader discussion of what’s going on with demand in terms of quality as well as across different products,” Peel says.
Prime and Choice as a percentage of production has averaged above 85% since late 2019 and will likely remain record high as the industry works through supply situation, Peel says.
Recent homebound consumer buying patterns may accelerate development of convenience products.
“Home meal kits, the Grub Hub, Door Dash, kind of concept. They imply a lot of additional fabrication … Let’s say a particular steak product that they use in house, but they found that when they do home delivery, you’ve got a time lag, so in some cases they’ve actually had to switch to a different cut of meat that had a slightly different moisture content, he says. “There’s a lot of dynamics. There’s a lot of interest in trying it. I think there’s some real questions in some cases about the follow-through demand on those markets, either from a quality standpoint or from a price standpoint or whatever. And so that changes some of those price relationships that they have counted on historically specials, especially seasonal price patterns. You get more blurring between the food service and retail lines now.”
Regardless of ongoing or pending changes, the dynamic beef cattle markets will adjust.
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