MarketsFarm — Cattle futures in Chicago dropped hard over the past few days, as mounting concerns over the new coronavirus in China triggered a broad-based selloff in global equities and commodities.
While the virus adds an extra layer of uncertainty to the North American cattle market, expectations for solid beef demand should remain supportive for prices overall, according to an analyst.
“There’s a ton of uncertainty,” said Brian Perillat, senior market analyst with Canfax, noting it’s still too early to know what the impact of the virus and related quarantines will mean for demand.
While any reduction in Chinese demand would have a global economic impact, Perillat noted the country “still has a huge deficit for meat — and that won’t change.”
The African swine fever outbreaks that decimated China’s hog herd over the past year and resulting shortage of pork should bode well for North American meat exports, according to Perillat.
Australia was already selling more beef into China, which was cutting into Australian sales to North America and contributing to higher world prices, he said.
The recently signed Phase One trade deal between the U.S. and China also opens the door to some opportunities. While Canadian beef may not benefit directly from a U.S/China deal, “if they can ship more product and their demand for cattle goes up that’s good for all of Canada and the U.S.,” said Perillat.
“For the most part, there’s a pretty positive outlook for cattle and meat demand,” he said, adding that prices were generally better to start 2020 than they were at any time in 2019.
However, prices typically come under pressure at this time of year due to seasonal trends. The latest coronavirus concern could eventually send prices below year-ago levels.
The U.S. has increased its cow numbers substantially over the past five years, but that trend is coming to an end, according to Perillat.
Both the U.S. and Canada were still putting more cattle on feed — especially heifers due to the slowdown in building the cow herd. Those feeders will take some time to work through the market, he said.
The Canadian dollar remains another background factor that could influence prices. Perillat said a currency in the 74- to 77-U.S. cent range would be relatively neutral.
— Phil Franz-Warkentin reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.