Comments from the cow side on the coronavirus...

[Overnight]

Latest blurb...

"Crashing futures told the story of Coronavirus worst fears - a calamity in global trade. Both live and feeder contracts were mostly limit down on the close as traders reacted to virus fears on global trade. Cattle joined all commodities and stocks in a freefall. With boxed beef higher Monday morning, packers were ready to enter the market at lower fed prices. A few cattle sold in Iowa at $116 -- fully $3-4 lower. Southern cattle owners were not yet ready to accept sharply lower prices after a somewhat bullish cattle on feed report. While there is little evidence of damage to our domestic markets for beef, the international status is far from well defined and the markets can easily over-react. ..

The virus news over the weekend was mixed. Some level of containment is evident in China as the number of new cases drops. However, new pockets of contagion in Italy, Korea and elsewhere assure the virus will not be limited to China. Much of industry in China is returning to functional mode and food distribution will be a priority. The ports are backed up with work but workers are returning and a reopening of commerce is on its way. All people continue to eat. Meats will be assigned a priority over other ag products such as corn and soybeans. Unfortunately, many supply chains are linked to Chinese production and disruptions are present everywhere including autoparts for U.S. car makers and fabric for clothing manufactures across all of Asia. China today accounts for one third of all global trade. Stock and commodity markets were down in early week trading.

Cattle Futures. Futures were limit down in most contract months -- spot February excepted. Global trade worries concerning the spread of the virus continued to plague the market. The latest news stories on the virus will drive the cattle futures market rather than market fundamentals or signals..."

 

[Turveyd]

Basically they've realised, it's too contagious to stop it spreading, so might aswell open for business accept it and move on, after all it's spread to other countrys they won't put lock downs in place so why be the only 1's hurt economy wise, might aswell, spread the love.

We are ALL going to get this, 2020 and likely 2021 are going to be rough years!!

 

[Overnight]

Latest blurb...

"The Federal Reserve Bank dropped interest rates a half of one percent in the largest one time change in years. The response rather than causing a rally was a sell off in stocks and this soon spread to the cattle contracts that had been positive all day -- until then. Mounting fears of the economic impact of the Coronavirus remain as the dominant theme of all market moves. Breaking away from these fears will require an acceptance of the new strain of the flu and the idea we can live with it, and will develop tools to combat it.

A nation wide warm up might stimulate improved demand for beef. Spring is generally a strong period when consumers return to beef cuts and beef specials can be found in supermarkets around the country where many consumers are taking on extra levels of food supplies for inventory in the homes. Markets are slowly moving to a "live with it" mode for the Coronavirus."

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CORONAVIRUS [COVID-19] - A LOOK AT THE IMPACT ON THE MARKETS

The damage to the markets has been unrelenting and severe. Cattle markets, as judged by the futures, have moved from $126 to $110 in the short period since the beginning of the new year. While global resources are still gathering data and analyzing this particular Coronavirus, enough information is available in the public realm to make some common sense and logical observations. The markets, driven by the many theories available on the internet, tend to react to the worst case scenario and this is likely where we are today. Assume the worst case of damage from the virus and you will find it priced into today's futures for cattle. Logic would tell you we are near the bottom for the freefall in cattle prices.

Statistics are available on the web to support almost any proposition. Here are some. You have a 1 in 60 chance of dying from ordinary flu if hospitalized. There are estimated to be 30-50,000 deaths each year from the flu in this country. In the early stages of evaluating this strain of Coronavirus [COVID-19], you have a 1 in 50 chance of dying. The virus is highly contagious and spreads like wildfire but symptoms are often mild and sometimes non-existent.

Extremely lethal viruses are not highly communicable. Highly lethal pathogens kill those infected before they transmit infection to others. Examples are eboli, SARS and MERS. SARS and MERS are also Coronaviruses -- only more virulent strains. SARS killed 8000 people 20 years ago out of 80,000 infections. MERS killed 800 people of the 2400 infected with the virus. COVID-19 has already infected 90,000 people in 48 countries and those numbers will undoubtedly keep moving higher. Around 2500 people have died. Older people are most vulnerable with young children seemly unaffected.

Politics always has a way of creeping into the mix. Public officials want to be careful to warn the public of upcoming health dangers to prevent any criticism down the road that they failed to alert people. Sometimes those warning get overstated and the markets over-react. All markets, both equities, bonds and commodities are moving with the latest new cycle.

Flu shots are offered in most communities in this country. Currently there are no vaccines for this strain of flu but soon there will be. Flu is something we live with and the contagious nature of this particular virus make it likely we will include this strain as one of the health risks we all endure. Each year the flu shots are modified to cover new strains of flu and this practice is likely to continue. It is not time to panic or head to the bunkers. This pathogen is not Ebola.

World wide policies for dealing with this virus will vary but most policies will move toward accommodation and vigilance. Commerce will return just as is happening in China -- the epicenter of the disease. Dock workers are returning to work and container ships are loading and unloading the many products necessary for everyday life including beef.

To date, the fallout to cattle prices has been shouldered by those who are unhedged in the live sector. Margins have only widened in processing and retailing. The lack of liquidity in the cattle contracts has triggered volatile moves that are unnecessary if there existed a cash settled contract. A persuasive case is now present that we are near or at a bottom in the price fallout for the markets.
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The point they made above about the fall from ~$126 to $110 is notable, and was noticeable. I recall lamenting how when the prices dropped to ~99 bux per contract on LE over a year ago(?), it seemed a bottom was in but I neglected to act on it. We may be facing something similar here as we enter into summer beef delivery.

 

[Overnight]

As LE hits another limit down today at 102.75...

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"The Coronavirus news continues to dominate. Travel plans change, event cancelations, and additional cases are reported in every headline. The result is an endless cycle of volatility in the markets. The stock market futures, 10 year treasury, and oil all cratered last night. Oil fell over 30% as Russia and OPEC argue over limiting supplies of crude. Ag commodities like grains, that trade overnight, also fell and the meats are expected to follow suit.
...
A debate has long existed regarding the influence of futures prices on cash transactions. There is no simple answer and the relationship is dependent on the percentage of cattle offered for sale in the cash markets covered by cattle futures contracts or the percent hedged. Packers test the proposition each week with bids that are exploring the basis levels necessary to trigger sales. Triggering sales in turn depends on volumes necessary to satisfy slaughter needs. If packers can only attract a few sellers at one basis level, the bids must be increased until a sufficient number meet slaughter needs. Friday's late day sales at $111 are an attractive basis level for a hedged seller but the seller runs the risk of a large market futures move Monday.

Even a limit up price move would still leave a $2 positive basis [cash over futures]. Packers will sometimes trigger small volumes of cash cattle by offering a favorable basis then not chase the market higher if futures rise, locking in formula sellers to a lower price.

Cattle Futures. The futures market tumbled Monday morning in sympathy with oil and stocks.

There is developing two schools of thought in the cattle contracts. Some commercials see the discounted prices of futures as an opportunity to price cattle or beef favorably into the balance of the year. This group includes processors, retailers, food service, and exporters. This group is forming price theories opposite from the algo traders who are jumping into the commodities based on macro economic views driven by the latest news events that are moving stocks and bonds. The result is waves of selling followed by waves of buying -- moving futures several hundred points in either direction."

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The weekly blurb...

"Cattle futures have been on a volatile decline characterized by large trading ranges but overall suffering large losses as traders hit the exit button for long positions. There is no need to examine the CFTC reports to find speculative long positions have been closed and speculative short positions opened, all based upon analysis of the current and future impact of the novel Coronavirus.

Separately, and more importantly, is the story of the beef market fundamentals. Last week's slaughter was 647,000 head, a large number that witnessed the harvest of 40,000 more fed cattle this week than last year. Not only did the weekly slaughter include large increases in head count, it also included 3% more tonnage from increased slaughter weights over last year. Carcass weights have increased 25# from last year on all the fed cattle harvested.

An economist might expect 40,000 more cattle, and 3% more beef, to send box prices into the tank, but instead box prices were higher this past week. This is occurring in a period of time when the production of all meats is higher than last year. Record pork and poultry production competes with beef on a daily basis and all meats are in high demand. Domestically, people are spending more on meat and demand for all meat products is good. Alternative proteins have not stolen our markets.

Export demand is good and getting better. The global protein shortage due in part to the African Swine flu in China, is creating broad demand around the world. Our primary trade partners of Japan and Korea are maintaining robust orders for our beef. Even China, hardest hit by the coronavirus, was nosing around last week about stepped up purchases of our beef and pork. Container ships that were backlogged at Chinese ports are now being unloaded.

While it appears the Coronavirus will continue to spread and more people will be infected, people will continue to eat. Eating patterns may change. More food may be consumed at home. It also may be that as springtime weather warms, most flu cases go into decline. The rout in the markets and the tether of cattle futures to the Dow Jones will at some point uncouple and allow each market to return to fundamentals. The fundamentals of the beef market seem to be on sound ground and is marching to a different drummer from the cattle futures."

 

[Overnight]

"...Americans are hunkering down and heading for the bunkers -- a mass retreat to their homes. They are taking with them, their family members, their work or school assignments, and a large supply of the daily staples that make life possible. Included in the staples is food and, in the past few days, across the country, people have raided supermarkets and discount markets for supplies, causing shelves to empty and items to disappear. Most of the items that have disappeared are those you might expect offering protection against pathogens.

The stash also includes food and popular among food choices has been beef. No figures are readily available to gauge the beef sales vs. other meats but antidotal observations verify beef has earned its fair share and maybe more. Some of the beef will be eaten this coming week, and some will be frozen, and some will eventually be discarded from spoilage. The net effect will be a spike in consumption and an immediate call for more product. This past week's slaughter pulled back to 630,000 head from 647,000 the previous week. Look for packers to ramp a large week for slaughter this coming week.

Broad trade occurred last week at $110 live in the south and $109-110 in the north while most dressed trades in the north were at $175-176. Late Friday transactions were from $105-108 live. The bulk of cash prices closed $15 over the spot April contract's close on Friday. This is likely the widest premium spread in a contract month ever recorded for a basis. It also is a signal the futures, driven by computer originated orders tied to the stock market, may have overshot the mark. In a final touch of irony, for a week that saw cash cattle $3 lower and futures $10 lower, box prices closed sharply higher after holding firm all week and the coming week will likely be another week of sharply higher box prices. The bottom in cattle futures will not be called by this publication or any one publication or trader. It will happen when consensus bearish opinion evolves to consensus bullish opinion spurred by new analysis of market fundamentals.

Virus testing will be in ramp up mode this week and will confirm a likely rapid increases in the number of cases. Globally new cases are beginning to decline although pockets like Europe are not. Testing will be the linchpin of managing the disease. In this country, Dr. Anthony Fauci is quickly becoming a national hero for his wisdom, humility, and commonsense advice, as medical director and infectious disease specialist in the face of this virus pandemic.

Cattle Futures. Cattle futures ended the week with one of the most bizarre trading sessions in years. Not only did the Friday session produce the widest possible range of prices [ex: April with a $103 high and $95 low], but limit down moves were far from locked. This translated into limit moves down that repeatedly saw the book at limit down disappear and traders assert additional purchases off limit down pricing. This is good evidence of substantial views the downward price crash has been overdone but for every buyer who showed up, they was another seller attracted to the short position. For the second day, the volume of transactions was fairly large for the day despite prices operating limit down for much of the day. After the close in cattle futures, stock prices shot upward 2000 points..."

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Not sure if this is a double blurb on the weekly update, or the blurb for next week, as I never check the thing on a Sunday night. But was just curious tonight, and here is the latest they have posted...

THE CORONAVIRUS AND THE BEEF DEMAND CURVE

Testing for the virus will ramp up during the coming weeks and we will find more people are infected. Coronavirus will continue to spread and all people will continue to eat. Eating patterns will change. Food selection will change. More food will be consumed at home. Understanding how those changes impact the demand for beef will be a work in progress but a few observations are possible now.

A recession has several economic definitions. It is generally two quarters of a decline in GNP. Most recessions happen slowly and are a slowdown in economic activity following a period of growth. It is part of business cycles. This recession is rapid like 2008-2009 and is characterized by a crashing stock market moving into bear market territory following a retreat of more than 20% from recent highs. However, each major economic event has its own characteristics and the responses by both government and individual companies is distinct.

This turn in the economy is not because the economy has run out of steam, and businesses have found their growth has exceeded the demand for their goods and services. It is an one off event that is triggering unprecedented changes in our economy all due to one source. The economic downturn will impact certain areas, and targeted industries, but many of those adjustments will likely be temporary. Airlines and cruise ships companies will be forced into crisis mode as will the entertainment industry including sporting events, concerts, movie theaters and public gatherings. Lives will change, daily habits will be reformatted, and life will go on.

Beef demand will be driven by the consumer. Less beef will be distributed through food service companies. Restaurants will close and those that do not close will find diminished traffic. Fast food may survive this event because of drive up windows and take out orders. The run on supermarket meat supplies of the past few days is some indication of the change in purchasing patterns by consumers. A major component of the government rescue packages will be to provide financial assistance to those most impacted by disruptions to their wages. This disruption should be temporary and the bridge should keep beef demand on a steady course domestically.

There is little evidence the export of beef is shutting down. There has been some logistic problems with shipping schedules and loading and unloading ships but most countries have worked though those issues and now ports seem to be open and goods moving as intended. Beef exports can be expected to continue strong and as the virus is controlled in China, we may see additional orders for beef to meet their meat shortage and fulfill the Phase I trade agreement.

It also may be that as springtime weather warms, most flu cases go into decline. The rout in the markets and the tether of cattle futures to the Dow Jones will at some point uncouple and allow each market to return to fundamentals. The fundamentals of the beef market seem to be on sound ground. Futures prices are implying a future demand curve for beef but that pricing does not mean it is accurate. There is little reason to think beef demand this summer and into year end will reflect a live prices in the $80s and $90s. That view also could be wrong but we are lucky to have markets that work and can correct.

 

[Overnight]

Monday's daily blurblog...

"The markets are an extreme of rarity. Limit down futures turned into cash trade at $105 live in the south changing to $110 by mid day. Futures came off limit to close and box prices jumped $12 as expected. The disconnect between cattle futures and the cash markets reached an unprecedented level not seen in the history of the futures market. While almost the entire beef producing industry senses a pricing error, little has been done in a market dictated by orders linked to stock prices.

The Battle Royal did not conclude with today market. The stock market continued down following the close in cattle taking off 13% and leaving carnage in its wake. Chairman Powell's emergency meeting of the Federal Reserve Bank and the unprecedented move to lower interest rates 1% to a nominal -0- rate failed to deliver comfort to an overheated emotional marketplace. Fundamental traders in the cattle futures failed to reverse the overdone futures rout that was contradicted by skyrocketing boxes after large beef sales over the past few days in supermarkets across the country depleted much of the short term supply in the beef pipeline.

Americans are hunkering down and heading for the bunkers -- a mass retreat to their homes. They are taking with them, their family members, their work or school assignments, and a large supply of the daily staples that make life possible. Included in the staples is food and, in the past few days, across the country, people have raided supermarkets and discount markets for supplies, causing shelves to empty and items to disappear. Most of the items that have disappeared are those you might expect offering protection against pathogens.

The stash also includes food and popular among food choices has been beef. No figures are readily available to gauge the beef sales vs. other meats but antidotal observations verify beef has earned its fair share and maybe more. Some of the beef will be eaten this coming week, and some will be frozen, and some will eventually be discarded from spoilage. The net effect will be a spike in consumption and an immediate call for more product. This past week's slaughter pulled back to 630,000 head from 647,000 the previous week. Look for packers to ramp a large week for slaughter this coming week.

Broad trade occurred last week at $110 live in the south and $109-110 in the north while most dressed trades in the north were at $175-176. Late Friday transactions were from $105-108 live. The bulk of cash prices closed $15 over the spot April contract's close on Friday. This is likely the widest premium spread in a contract month ever recorded for a basis. It also is a signal the futures, driven by computer originated orders tied to the stock market, may have overshot the mark. In a final touch of irony, for a week that saw cash cattle $3 lower and futures $10 lower, box prices closed sharply higher after holding firm all week and the coming week will likely be another week of sharply higher box prices. The bottom in cattle futures will not be called by this publication or any one publication or trader. It will happen when consensus bearish opinion evolves to consensus bullish opinion spurred by new analysis of market fundamentals.

Virus testing will be in ramp up mode this week and will confirm a likely rapid increases in the number of cases. Globally new cases are beginning to decline although pockets like Europe are not. Testing will be the linchpin of managing the disease. In this country, Dr. Anthony Fauci is quickly becoming a national hero for his wisdom, humility, and commonsense advice, as medical director and infectious disease specialist in the face of this virus pandemic.

Cattle Futures. Stock market linked orders overwhelmed fundamental traders as futures continued the rout moving to limit down soon after the opening. Live cattle in some contracts recovered from limit down but losses remained in all cattle contracts leaving futures trading $17 under the current cash..."

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'Twas not paying attention today to LE, but just glanced at the rolling from April to summer...April closing at 92.5, and June and August both having a last print of 85.9, with expanded limits? Damn, the virus is really messing up the beef demand curve. Future players in beef are not expecting a happy summer-to-Labor Day for beef demand it seems.

 

[Overnight]

Today's line, with more bemoaning the LE contract. (I love those)...

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Cattle futures are playing catch up. The $4.50 limit remains in place for the second day in a row. Feeder cattle futures where the book of orders is often populated with orders for 1 or 2 contracts may have overshot the cash as shorts cover their positions. Live cattle remain well below current cash but wary longs will stay away from closing the wide gap in a delivery month too soon.

Gauging beef demand under the current environment is a learning process. Certainly some beef went into the freezer and will be left for back up. Normal home eating is likely to include as much beef as eating out and maybe more. People will have more time to prepare meals. As temperatures warm, more outdoor cooking will occur. Next week more normalized shopping patterns will be present in the nation's supermarkets. The two trillion dollar bail out program passed by Congress will provide the short term assistance to allow food expenditures to continue with little disruption. The package also shores up the food stamp program.

The trip to the grocery is the one remaining normal occurrence in our daily lives but it also provides a risky contact point for infection from the coronavirus. All food markets are deploying efforts to create a safe environment but the methods differ by store and vary within the same company by location. On one end of the spectrum would be the store that passes out gloves, masks, and hand wipes upon entrance and has staff wiping surfaces continually. Many stores limit the number of people in the store at one time and compel shoppers to stand in a line 6 feet apart to enter. Other stores provide fewer protective supplies. Most stores are continually disinfecting areas of the store. Shoppers still are around other people and some of those people are carriers of the virus and some are coughing. There also are some workers who are infected and may not know it including check out clerks. Automated check out stations are getting heavy use. Special hours for shopping by seniors is offered by some stores.

Cattle Futures. Cattle futures in all contracts closed limit up. While bid pools were smaller, the late day stock prices set an all time record for gains. This occurred after the close for cattle.

The role of a futures market in the cattle industry is a popular topic for conversation. The industry has a wide range of views and some advocate closing the cattle pit.

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THE DYSFUNCTION OF THE CATTLE FUTURES MARKET

Live cattle futures began trading in 1964 on the Chicago Mercantile Exchange (CME) as a non-storable commodity futures product. At the time most fed cattle traded in the river market stockyards of Chicago, Kansas City and St. Joe. The contract was established as a delivery product and as feeding of cattle spread to the plains, additional stockyards were established as delivery points. Only shorts were allowed delivery options to provide a mechanism for forcing convergence of cash and futures at the termination of a contract month.

The cattle futures, like other futures products, are a risk transfer vehicle following the model of grains in the ag sector. Early traders in cattle contracts were mainly composed of commercials [hedgers seeking to lock in a profit margin] and speculators [interested in guessing future prices for cattle]. Later day participants in cattle futures are index funds, technical traders, and flash traders and other computerized algorithms to initiate orders.

The core participants in cattle futures trading are the commercials. They are always around and always interested in protecting pricing. They include a mixed bag of interest ranging from:

· Supermarkets. These are longs wanting to fix future prices for beef.

· Food service. These include restaurants, and fast food companies who also are long hedgers.

· Processors. They can be long of short but are protecting processing margins or either cattle they buy from producers or beef they sell to retailers.

· Exporters. These are global participants who can be either long or short depending on whether they are buying or selling.

· Cattle feeders. Mainly short hedgers using the appropriate out month for locking prices.

The sometimes participants are parties who find it advantageous to enter the market but can disappear on whim. · Index funds. These funds offer inflation protection to corporations. They purchase [long] a basket of commodities in order to deliver to buyers of their fund protection against a rapid rise in inflation rates in the country. · Managed futures funds. These are speculators who jump in and out of the market at whim and can be either long on short. They might use technical or computerized trading programs.

· Individual speculators. They can be day traders to big picture long term traders who develop their own theory of prices for the market on the long or short side.

· Hedge funds. They can enter the market on either side and may be macro investors or simply protecting exposure they have in another related market.

A well-functioning futures market serves all the interests of the participants both functionally and fairly. This doesn’t mean they all profit from trading, but it does mean the design of the contract is properly constructed to present fairness and equal opportunity to all traders in a manner that fulfills their market objectives.

The current live cattle contract fails to provide functionality or fairness. The contract construction was for a stockyard marketplace that existed in the 1960s where all cattle traded on a live basis. That marketplace no longer exists. Trade supporters of the delivery contract argue for hours about market specs such as weight parameters, quality grades and “out cattle” on deliveries that should never happen. Animal rights activists have questioned all unnecessary stress to livestock and delivery to antiquated stockyard facilities is riddled with problems not even considering the unnecessary cost burdening a delivery system. The live delivery is not even reflective of how cattle are mostly traded with two thirds sold on a dressed basis with a grid.

The contract also fails to provide fairness. Longs can not call in a delivery. Only shorts can deliver. This basic fact prevents longs from entering the market. A hedge fund operator in Darien, Connecticut does not want to receive 10 loads of cattle in Clovis, New Mexico. Many of the large feeding companies don’t want to end the delivery advantage given them in the contract’s construction and have prevailed with CME officials in sustaining a delivery contract. The advantage is a mirage. It doesn't exist and destroys liquidity -- the hearts blood of a futures contract.

The current discrepancy between cash and futures is not as simple as computerized trading as the culprit. There are computerized trades tied to the stock market but understanding the index funds is very important to understanding the market. The index funds are owned by large corporations hoping to find protection from inflation in the fund. In obvious times of recession, those corporations will sell the index fund having no need for inflation protection. In turn the index fund must liquidate commodity positions including cattle in order to fund the exiting corporation. These are forced orders forcing large volumes of short trades on the cattle contracts.

The industry’s failure to change the contract is now coming back to haunt them. They have lost the longs in the marketplace. Futures prices are $40 under current cash for summer month or $500/head. Feeder cattle purchases start a feeding venture with $150 losses at best. The longs have disappeared from the market.

The answer to a dysfunctional cattle contract is a cash settlement contract that includes all negotiated grid cattle, and all formula cattle, converted to a live price FOB the feedyard. These cattle, after adjusting them to the proper week, and including cash market sales, will provide a reliable, transparent cash settlement price that will return the longs to the market and provide the liquidity necessary for any functioning futures market.

 

[Overnight]

The market isn't even down 5% from an all time high overbought , overhyped market and people are worried?
and start crying to the Fed and Price protection to support this market.
the market is being proppped up or inflated by the wall street racket who wants money coming in. When prices fall. people don't buy stocks and less money coming in.
less money coming in. wall street needs 20 billion per year to pay the fees etc. most of the money is in management fees not commissions in the peanut flea market exchanges...

Care to revise your statement?

 

[Overnight]

Today's daily blurb. Seems important on this historical initial jobless claim day...

Cash Cattle

Trade on the online fed cattle exchange sold a few pens of cattle at mostly $113. This was followed by trade in the country mostly at $112. Dressed sales were mainly at $180. These prices are $7-10 lower than last week. One packer seems to have done most of the lifting in the cash markets. The sales came amid crashing futures and rumors of slowdowns in slaughter levels at some of the nation's slaughter plants. Daily slaughter rates will decline as chain speeds slow in an effort to provide a safe environment for plant employees.

Over 6 million jobless claims were filed doubling the number last week and sending futures sharply lower as pessimism permeates all aspects of our lives. Small businesses including livestock operations will be applying for the PPP loan forgiveness plan that is suppose to be available this week. Talk about government participation in insurance products on futures options for price risk are still unclear.

Cattle owners, gathered remotely using audio conferencing, to discuss alternatives to current cash markets that don't seem to be large enough to deliver true price discovery. The online fed cattle exchange hosted two auctions with close to 5000 head offered each week pulling some inventory from formula and grid sales into the cash markets. Margins in the beef pipeline have always been thin but in the past two years, they have not allowed the beef producers in the live sector to participate.

The threat of a shutdown of production facilities has been present from the start of the influx of the virus into this country. Essential industries including all food pipelines must remain in place and contingency plans have been in place for several weeks. The contingency plans are most important at sites where human participation is the largest and that focuses on the processing plants for beef, pork and poultry.

The companies operating these facilities have been working both with screening employees and with establishing work rules that allow safe workplace conditions to prevail and prevent processing disruptions. The role of the USDA and federal government is also important in conveying to consumers the priority of supporting production facilities to assure no disruptions to operations for our food supply.

Rumors of slaughter slow downs in the beef plants has the ability to undermine the markets. Slowdowns can be exaggerated to benefit traders who hold commodity positions and worst case scenarios can scare the valuable employees who carry forth the important job of maintaining our food supply. Last week's large slaughter number responded to an immediate need and delivered the boxed beef products used in retail outlets throughout the country.

More states announced shutdown "stay at home" orders as we enter what everyone hopes will be the final phase of this epidemic. San Francisco, the first city to mandate closing of businesses and schools, stands out as a example of the value of slowing the virus spread despite the economic consequences. People across the country can do their share by observing these important guidelines.

Cattle Futures. Cattle futures fell the daily limit with rumors of slaughter slowdowns from worker shortages. As we move forward in the delivery month for the April contract, futures remain $14-15 under the cash -- a constant reminder of a broken futures contract.

 

[Overnight]

No wonder the live contract fell below $80 on Friday and today...

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As the coronavirus crosses the nation, it was inevitable that the outbreak would touch someone at the beef plants. Beef plants are regarded as essential industries and the nation's commitment to keeping the food supply chain open and functioning is critical. Two JBS plants will have slaughter slowed but not stopped after identifying positive tests for COVID-19 on employees in Grand Island and Greeley. This follows reports of isolated cases at other plants in the U.S. and Canada.

The plant managers said employees will not be required to work, but the plants will stay open with strict guidelines for protection from the spread of the virus. Obviously, this will slow down the chain speed but rescheduling efforts will keep slaughter volumes as close as possible to normal needs. The plants will require close supervision of the workforce to assure no sick employees are on duty.

Protecting the nation's food supply is a top priority of the government and emergency powers give government officials wide latitude to dealing with crisis problems and the meat processing plants in the country will be a target of their focus. All of the beef plants will be taking temperatures, dispensing PPE [protective personal equipment such as gloves, masks, plexiglas separators, and other gear], and changing work station positions.

Assuring open and operating beef plants may require screening all employees with COVID-19 testing. The process would be complicated and would require testing kits, if available to be deployed to each plant. The testing would also need to include family members with stay at home orders. USDA is expected to take an active role both in plant supervision, testing, and as a communication channel to assure consumers of a steady supply of food.

Cash trade was one of the smallest volumes in recent years. This occurred at a time when the only reported cash trade was $114 in Nebraska [delivered price]. On Wednesday the online fed cattle exchange sold a few pens of cattle at $113 followed by trade in the country mostly at $112. Dressed sales were mainly at $180. These prices are $7-10 lower than the previous week.

Statistics are giving some creditiblility to the idea we are near the bottom of the crisis and the curve might be changing directions. This doesn't mean it is over or that it will not continue to dominate our lives but it does mean there are signs of light at the end of the tunnel. Stock prices are forecast to be sharply higher.

Cattle Futures. Cattle futures fell the daily limit Friday with rumors of slaughter slowdowns and COVID positive cases at some plants.

==========

Weekly blurb...

The natural role of buyer and seller is advesarial. Buyer wants to buy cheaper and seller wants to sell higher. The transfer of ownership in the livestock business is no exception and negotiating the transfer price is a major allocation of time on both sides and a frequent source of contention among the parties.

There may be times that call for cooperation and a combined mutual effort between the parties and this may be one of those times. The coronavirus crisis is a time for pulling together to solve the multitude of problems encountered everyday that threaten human health and commerce. No problem is more critical to daily life than an assured food supply and beef is a major player in this space.

It was inevitable that some employees at a meat plant would be identified as COVID-19 positive and that is now a reality. The implications are far from being known but the immediate concerns of both cattle feeders and meat packers is keeping the plants open and keeping the supply of beef flowing through the beef pipeline.

One option is to sell the April futures and deliver the cattle and let someone else worry about where they are slaughtered. Some have chosen that route but there are no longs so the price of the April futures is discounted $25 under the cash prices and we are in the delivery month.

These extra-ordinary circumstances call for an emergency arrangement between cattle feeders and meat packers called a tolling arrangement. Tolling has been around for decades and is a sharing of the margin, after deducting the cost and marketing expenses of the beef sales, between the parties. The base price would be the price this past week protected for the month of April. The base price would be the start of calculation that would include processing and delivery expense of the beef and the net would be split between the parties.

The alternative is an uncertain market and a march towards an artificial price level on the futures. The futures and the cash are supposed to converge. The usual approach is the packers will drop bids towards the futures level until hedged feeders agree to unwind their hedge and accept the price. The problem is there are no longs to close the gap and there is fear in the marketplace that plants may close. There will be an outcry if feeders are ask to take the $300/head loss under today's cash for cattle to sell in April.