How have the attacks of Sept. 11 and subsequent events impacted the cattle market? Certainly there have been no changes in the cattle and beef supply situation in the country, but how has demand been affected?
Immediate hit. It would appear that the food service industry took the biggest immediate hit. With great uncertainty and some anxiousness, folks simply limited their dining away from home. For a time, convention and vacation traveling almost came to a halt. With over 50 percent of beef being consumed away from home, the industry got nervous.
It seemed that every U.S. airline announced cutbacks and personnel layoffs within a week of the attacks. Of course, those airline cutbacks reverberated throughout other industries that interact with the airlines. Some economists predicted a recession for an already anemic U.S. economy.
Logic suggests that a weaker economy is less supportive to beef sales.
Market reaction. The cash fed cattle and futures markets took the bad news right on the chin. The cash fed cattle market was already staggering under the pressure of near record numbers of heavy slaughter ready cattle and 6- to 10-pound heavier carcass weights compared to last year.
Additionally, beef exports for 2001 are lagging significantly behind 2000, the victim of a stronger U.S. dollar compared to foreign currencies.
About the same time as the terrorist attacks, Japan identified a dairy cow with bovine spongiform encephalopathy and the demand for beef of any kind in Japan took a hit.
The U.S. Meat Export Federation reports a 10 percent to 20 percent decline in imported beef sales to Japan. In two weeks time, the cash fed cattle market dropped $4 per hundredweight from a level that was already creating red ink for cattle feeders.
Both the fed and feeder cattle markets plummeted roughly $5.50/hundredweight in the two weeks following the attacks. The fed cattle futures reacted to the concerns of the weaker economy and reduced beef demand. The feeder cattle futures reacted in sympathy to the feds.
Then came anthrax. By early October, the futures had rebounded to within $2.50 of their levels before Sept. 11. Next came the reports of anthrax contaminations and the markets fell again.
As of this writing, the cattle futures markets are at the lows set two weeks after the attacks.
What to do. Producers need to keep the situation in perspective. Yes, the market is reacting to the potential of decreased beef demand. Yes, there are more than ample supplies of fed cattle through the end of the 2001.
On the other side of the coin, the industry has rapidly used up an increasingly shrinking supply of feeder cattle. Monthly, on-feed cattle placements finally fell during August as compared to the previous year. August placements were down 10 percent from 2000 and off 9 percent compared to 1999.
Demand will grow. There will be reduced supplies of feeder cattle during 2002. Contrary to earlier expectations, cow/calf operators currently show little interest in herd rebuilding. Year-to-date cow slaughter is still running 2.5 percent ahead of last year’s pace. The percent of heifers in feedlots instead of being retained is still at a historically high rate.
The current market may be providing some excellent opportunities to put together lightweight feeder cattle at discounted prices. Operators with feed and forage supplies that enable them to add pounds for an additional six to nine months may be able to take advantage of the situation.
(The author is an animal scientist at Virginia Polytechnic Institute in Blacksburg, Va.)