Volatility is 'name of the game' in cattle markets, NDSU economist says
FARGO, N.D. — After news of a fire at a beef packing plant and a surprising report on corn production expectations hit within days of each other, the cattle market responded violently, spending a couple days sinking as low as it could go before starting to climb out of its hole.
That's not surprising, says Tim Petry, livestock marketing economist at North Dakota State University Extension Service. Markets tend to overreact to catastrophic events, and both the fire at the Tyson Foods plant in Holcomb, Kan., and the U.S. Department of Agriculture report on corn qualify, he explains. And he doesn't expect to see much stability in the cattle market anytime soon.
"Volatility is going to be the name of the game," he says.
A fire destroyed part of the beef plant in Holcomb on Aug. 9. While the company has said it plans to rebuild in the same location, the plant is down indefinitely. The plant had the capacity to slaughter 6,000 head of cattle, or about 5% of U.S. beef production.
On Aug. 12, the USDA's National Agricultural Statistics Service forecasted corn production at only 4% less than 2018, which surprised many given the challenging growing season.
"That just caused extreme pandemonium," Petry says of the two events.
In the days after the initial reaction, corn prices continued to fall, which may have helped feeder cattle rebound some of the lost ground, Petry says. He explains that feeder cattle prices and corn prices tend to have an inverse relationship, as cheaper corn makes feeding cattle more economical.
There are a lot of factors determining what will happen with cattle markets from here out, Petry says. Though feeder cattle prices have come back somewhat, fed cattle prices have been slower to respond because of concerns about slaughter capacity.
For its part, Tyson plans to move production to alternative sites, Steve Stouffer, group president of Tyson Fresh Meats said in a statement after the fire.
"Tyson Foods has built in some redundancy to handle situations like these and we will use other plants within our network to help keep our supply chain full," he said.
For feeder cattle, the main question will revolve around what happens with corn. Many market experts expect the actual yield this fall could fall far short of USDA's expectations because of late planting and poor growing conditions. Petry speculates there is upside potential for corn, which would affect the outlook for feeder cattle. What he doesn't expect is for things to calm down anytime soon.
"Expect corn prices to continue to be volatile, and therefore feeder cattle prices will continue to be volatile," he says.
For the time being, Petry recommends cattle producers stick with their marketing plans. Taking a wait-and-see approach is his advice.
"Don't do anything in haste," he says.
Whether backgrounding calves — feeding them after weaning — to hold onto them longer, thus giving the market more time to straighten out, is a good idea for Upper Midwest cattle producers largely will depend on the local situation, Petry says. In areas with adequate or surplus feed supplies, background may be advantageous; however, some parts of the region are dealing with poor feed conditions, which would make backgrounding a less viable strategy.