Jobs Under the Stocker Feeder Segment for the Beef Industry

The effects of COVID-19 on the livestock market are well known and felt. Some furnishings include depressed futures and cash prices, unusual ground patterns, decreased packer bids and sale barn volume, packing plant closures, consumer hording of meat products, and shifting food service products for retail consumption. All these effects occurred every bit market participants grappled with everchanging government and manufacture policy which reduced consumer demand and resulted in bottlenecks and increasing supply gluts upstream. Simultaneously reducing demand and increasing supply always cause prices to plummet, and in the case of COVID-19 very rapidly. Some segments of the market place are likely to begun to stabilize equally government lockdown restrictions are lifted. Nonetheless, the beef circuitous still has pregnant supply and need issues to sort through in the coming months.

Market Conditions Pre-COVID-nineteen Meltdown

Since the middle of February, the national and local news media has largely focused on the impacts and changes to the beef complex due to COVID-19. Lost, at to the lowest degree for some time, has been the supply and demand conditions that existed prior to the virus and to some extent withal exist today. Here I review some of those market weather condition as well every bit a central segment of the beefiness supply chain that allows for the beef complex to adapt to intermediate supply and demand disruptions.

In the first part of 2020, most marketplace analysts had forecasted increasing prices due in big part to the following:

• Signed and ratified trade deals with Red china, Nippon, USMCA with Mexico and Canada, and increases in the European Matrimony consign limit.
• Ongoing outbreak of African Swine Fever (ASF) in Communist china, Southeast Asia, and Eastern Europe leaving a global protein defect that would exist difficult to fill even with record production levels.
• Slowing downwardly and leveling off the U.South. beefiness herd expansion every bit fewer heifers were retained for convenance and beef cows due to tape level cull cow slaughter in the autumn.
• Strong domestic protein need due to many items being featured in retail ads.

These four key marketplace atmospheric condition all pointed to college prices for cattle producers. This is noteworthy since weather one to three take and yet apply to the cattle industry. All trade deals are still in place and during this COVID-nineteen situation exports have generally stayed above the historical five-twelvemonth boilerplate. In other words, export demand for beef and veal products is nonetheless relatively strong with a stiff currency commutation charge per unit. ASF is nevertheless ongoing in China and Southeast Asia and repopulation efforts are still failing. The OIE reports many electric current and active cases in China whereas most of the ASF resolved cases are in Vietnam. This implies that there volition continue to be a supply shortage of pork and other poly peptide products in both the almost and immediate global futurity. The herd has not grown in the concluding six months. If anything, it has shrunk. Thus, the merely marketplace condition that existed prior to COVID-nineteen that led to bullish marketplace price forecast that does not exist today is strong domestic need. This volition be a business concern for the industry as beefiness consumption decreases as the macroeconomy decreases. Too, consumers have become price sensitive to beef products since the 1980s (i.e. if beef prices change by 1%, they will subtract consumption > 1%). Finally, only about 80% of beef and veal products are exported. And so, while export demand has remained potent, the beef circuitous still heavily relies on domestic demand to back up feeder and fed cattle prices.

Stocker Cattle Act as a Buffer to Manage the Menstruum of Cattle Through the Beefiness Circuitous

One of the biggest disruptions that all livestock industries faced during the COVID-19 situation was a packing plant work force that was either sick or did not show up to piece of work. This led to packing plants either reducing daily product capacity or closing plants all together. These geographically dispersed and clustered plant shutdowns caused bottlenecks in the production supply chain as producers with fat cattle ready for slaughter were unable to discover hook space or bids. Feedlots responded to reduced packing capacity and lagging domestic demand by placing less cattle on feed. The weight distribution of cattle that were placed suggested that feedlots perceived this shock to be short run given larger reductions in 800+ lb. cattle relative to <600 lb. cattle placements. Feeder cattle non purchased by feedlots either stayed on the habitation ranch or were transferred out to stocker operations.

The stocker operation is a unique feature of the beefiness supply chain. Broadly speaking, a stocker functioning is any operation that engages in postweaning growing programs that produce commercial feeder cattle (for example, a retained-ownership component of a cow–dogie operation or a separate commercial enterprise on grass). So functionally, stocker cattle are weaned calves non yet placed in feedlots simply intended for sale as feeder cattle. This segment of the operation exists because of the availability of cheap feedstuff such equally grass, hay, and distiller grains. It should non be understated that the beefiness industry has been amend able to respond to the COVID-19 situation because of the timing of the virus. The US lockdown began in March and restrictions began to be lifted in May. Cattle were coming off winter forage had the ability to transition to spring and summer grass. The availability of these cheaper feed sources, relative to corn, has greatly reduced the impact of COVID-19, much more and so than in the hog and poultry industry.

Market place Size and Distribution of Stocker Cattle

And so, what does the geographic stocker supply expect like heading into the spring and summer of 2020? The stocker alphabetize is a commonly used metric to determine the net motility of feeder cattle within a state. It is calculated as the electric current feeder supply divided by the calf ingather in the previous year. Figure 1 plots the stocker index for all states which USDA collects information using January 2020 data. A few highlights should be noted. Starting time, Kansas, Oklahoma, and Iowa are the three states with the largest stocker cattle moving into 2020. Second, operations located in the S E and Western States are below the US average indicating more than cattle leaving the state than entering. Third, states with the most stocker cattle appear to be in and effectually the Eastern Corn belt. So, what does this potentially imply for feeder cattle prices in these areas? Bold constant local need and negligible cattle quality differences would imply that feeder cattle prices in states where the stocker index is to a higher place (below) the US average would be lower (college). How much lower (higher) likely depends on the fourth dimension of year feeder cattle are purchased.

Figure 1. Stocker Index by Land in 2020 (USDA-NASS 2020)

Managing Cattle through and out of the COVID-19 Crisis

While the stocker industry has helped dampen the supply concatenation fiasco due to COVID-19 cases among packing establish workers, the efficacy of this supply buffer largely rests on the availability of cheap forage relative to corn. If the pasture and range atmospheric condition remain in very skilful to proficient weather the longer cattle can exist held outside feedlots. However, if pasture and range weather worsen and so more cattle volition need to enter the feedlot putting downwardly force per unit area on feeder cattle prices. While atmospheric condition is geographically varied, overall 2019 was a very wet twelvemonth with pasture rated poor or very poor consistently five-10% lower than the historical 5-yr average throughout the summer and into the fall. In other words, the data suggests that feed resources are going to be tighter in the summer than terminal year.

Atmospheric condition predictions from NOAA would tend to confirm that this yr is likely to be warmer that what has been experienced in the past. Temperature tends to oscillate from warm to cool in patterns that bridge multiple years. The U.Due south. and Midwestern Plains in particular, are coming out of the cooling wheel and temperatures could rise. NOAA predicted in April 2020 that at that place is a 60% chance that the weather will exist warmer in autumn than in previous years. The accuracy of this prediction too as where forage weather condition worsen first volition have a lot to practise with the local pricing of feeder cattle and the future supply of feeder cattle.

So, what does all this mean for managing feeder cattle price risk? The long and brusque is know your cost of production, find a futures price that maximizes profit, and lock information technology in using available risk direction tools recognizing that maximum profit this year could be negative. Available take chances management tools include futures, options, or Livestock Hazard Protection (LRP). One lesson that our industry has painfully learned over the by twelvemonth or so through the Holcomb fire and now COVID-19 is the urgent need to aggressively and actively manage price risk in all parts of the production process – both the actual price level and price variation.

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Source: https://beef.unl.edu/beefwatch/2020/pre-covid-19-market-conditions-persist-stocker-industry-can-dampen-damage

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