From Texas Standard:
There are lots of terms to describe the market meltdown we've seen over the past month or so: a crash, a dip, a prelude to recession. The cattle industry has its own name for a downturn: a wreck – and make no mistake, we are in the middle of a big one. But though economic shock from coronavirus pandemic is part of it, this wreck has less to do with disease than with the uncertainty surrounding it.
Billy Schwertner has never done anything but work with cattle. At 74 years old, that’s saying something. Schwertner has a 3,000-acre ranch in Liberty County, just northwest of Houston, where he runs 450 head of cattle. He also owns and operates three livestock auctions – one in Edna, one in Wharton, and one in Anderson.
The once-a-week auctions connect ranchers to feedlots and big meat-packing companies. They’re a key link in the chain that runs from a pasture to your plate. Keeping them open is a responsibility that Schwertner takes seriously.
“I’ve been in the business nearly 40 years, and I have cancelled a sale maybe five times,” he says.
Last week wasn’t one of those times. Schwertner thought he might have to cancel because of the coronavirus, but county officials gave him the go-ahead. Agriculture is considered critical infrastructure, so at the moment, places like sale barns won’t be forced to close because of the virus as long as they’re enforcing social distancing. But that didn’t resolve all the uncertainty.
“Last Tuesday, my cell phone alone, not my office phone…I took 89 calls,” Schwertner says.
The calls were all from fellow ranchers. Even as shoppers picked meat coolers clean, fear and uncertainty around the coronavirus caused cattle prices to tank. Cattle dropped about 20% in value through the first three weeks of March. Ranchers wanted to know what would happen to the beef market – whether they should sell cows, or hold onto them or fatten them up.
“I hate to give them the wrong answer. My famous comment is I can tell you what happened yesterday but I haven’t got a clue what’s going to happen tomorrow,” Schwertner says.
No one does – and that’s the problem.
Under normal conditions, the cattle market is fairly predictable. But the coronavirus has evaporated all normalcy. No one really knows what the demand for beef will look like for the foreseeable future. Grocery stores are selling out of hamburger, but what about restaurants? What’s going to happen to exports? Will people still be buying filets, or just tri-tip? And will the situation change again in a week, or a month?
The pervasive doubt is a huge problem for cattle raisers, according to David Anderson, a professor and extension economist at Texas A&M University, specializing in livestock.
“This is a real wreck for producers,” Anderson says. “It’s a disaster.”
And it couldn’t have happened at a worse time.
It’s not just that beef prices have suddenly dropped – they’ve dropped at a time when beef production was expected to be exceptionally high. Cattle prices hit record highs after Texas’ historic drought in 2011 and 2012. Ranchers responded by producing more cattle. But that takes time.
“I can’t snap my fingers and magically produce more beef,” Anderson says.
It takes a few years to do that. The U.S. cattle herd expands and contracts in cycles. By 2019, the beef cattle population had peaked – and it’s still at a high level.
So just as a huge number of cows are ready to be sold and then turned into beef, the coronavirus hit. Prices fell through the floor because of market uncertainty, and cattle producers were left in the lurch.
The shock to the market was so significant that some auctioneers cancelled their weekly sale because they weren’t sure if they’d have enough cows to make it worth their while. But rancher and auction owner Billy Schwertner will stay open as long as he’s allowed to.
“You know the producer needs to sell the animal to create cash flow. We need to have a sale to pay our bills and all that kind of stuff, and then our employees, keep all them going. And then it’s also [part of] that food chain,” he says.
So if cattle prices stay low, what happens next? Anderson, the Texas A&M economist, says in the short-term there aren’t a lot of reasons to be optimistic.
Tyson, the giant meat packing company, announced last week that it will give some of its suppliers a one-time cash bonus to help offset the price problems. But that likely won’t be enough to burn off the clouds of uncertainty hanging over the market.
The good news for ranchers is that at least feed costs are expected to be low this year, and there will likely be fewer calves born this spring than last, which could help prices come up.
“And so there are some supportive things in the market, depending on what happens in the next six months,” Anderson says. “And you know the uncertainty is how long does this last and how deep and severe does it get.”