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Flu outbreak sees buyers balk at beef futures

The good news is cash prices have remained more-or-less steady amid the chaos.
Markets have seen cattle futures (mainly live and fed) decline in recent weeks as the highly pathogenic avian influenza (HPAI) strain made its way into dairy herds in six states to date.

WESTERN PRODUCER – It’s been a wild ride in beef cattle markets as investors struggled to make sense of the growing outbreak of bird flu in U.S. dairy cattle.

Markets have seen cattle futures (mainly live and fed) decline in recent weeks as the highly pathogenic avian influenza (HPAI) strain made its way into dairy herds in six states to date.

The good news, said a cattle auction leader and market expert, is that cash prices have remained more-or-less steady amid the chaos.

“The cash prices for the cattle being sold today right across western Canada were slightly lower but not as low as what we thought they would be,” said Rick Wright, of the Manitoba Livestock Marketing Association, April 9.

“And this past week, even with the Friday (April 5) being so bad on the futures, Monday (April 8) sales in Manitoba and eastern Saskatchewan were steady to slightly lower but there certainly wasn’t that significant drop in the prices.”

Wright called the hits to cattle futures markets a “knee jerk” reaction to a virus (now dubbed Bovine Influenza A Virus — BIAV — by the American Association of Bovine Practitioners) that has yet to be found in either dairy or beef herds in Canada.

“I think unless we see some more bad news coming in the very near future that the live cattle markets are going to continue to be fairly good and certainly be near the record prices that they are right now,” he said.

BIAV is particularly affecting futures contracts for cattle being purchased now for delivery in September, October and November, he added.

For cattle buyers shaken by the spread of BIAV, Wright has one thing to say: this is not BSE.

“According to a veterinarian out of Oklahoma State it usually lasts about two weeks from the time the cows start getting sick until they’re pretty much back in production again. The symptoms are basically a lack of appetite and in the dairy business, drop in milk production. It’s not fatal.”

According to Reuters, Chicago Mercantile Exchange’s (CME) June live cattle futures sank to 171.400 (its lowest since January 16) on April 1, settling down 3.800 cents to 172.050 cents per pound. Actively-traded May feeder cattle futures were down 5.700 cents at 238.175 cents per pound. Both cattle markets ended more than four per cent lower in the week.

Live cattle futures plunged to the lowest point since mid-January, driven in part by the HPAI infecting a dairy herd in Ohio for the first time along with further infections in Kansas and New Mexico.

In his April 9 report on western Canadian feeder cattle markets, market commentator Jerry Klassen wrote that deferred live cattle futures were $15 off recent highs, marking it as a sign that buyers were “stepping off” feeder cattle in response to the virus.

These reactions weren’t surprising, wrote marketing analyst Anne Wasko, in an email.

“Markets react to uncertainties or unknowns and that’s exactly what the futures market in Chicago has been doing for the past two weeks,” said Wasko with Gateway Livestock Marketing in Taber, Alberta.

Brenna Grant, a market analyst with Canfax, chalked the market change-up to “overreacting” investors fearing the U.S. outbreak would dent consumer appetite for beef in spite of U.S. government assurances that food supplies are safe.

“We can see that when we look at the fact that cash prices for cattle have held up surprisingly well. And that’s because they’re being influenced more by the fundamentals,” said Grant.

It’s hard to say what would happen in the futures markets should the virus enter a beef herd in Canada, but Grant recommended that beef cattle producers look into price insurance or other risk management strategies.

“Price insurance for beef cattle provides a price floor and it gives producers the option to have something that gives them a floor price when markets are being volatile.

“Obviously producers don’t have to pick top coverage; they can get lower coverage levels with lower premiums,” she said.

“That is one risk management strategy but there are also others that producers can look at.”
Wasko said producers need to assess their own risk profile and act accordingly.

“Price risk comes in many forms: Mother Nature, foreign animal diseases, geopolitical events (i.e. war), pandemics, fires at packing plants, trade impacts, etc.,” she wrote.

“All of these (and more) are always in play. Hedging, options, contracts and insurance are various methods used to manage cattle price risk.

“North America cattle markets are very much entwined so what affects the U.S. market will also be felt in Canada.”

The virus wasn’t the only factor leading to the drop in CME’s cattle futures market over the week ending March 28. Others included a plant fire in Liberal, Kansas and a bearish USDA cattle on feed report.

Said Grant, “Where we’re at with record high prices, (it) can take very little in terms of negative news to result in the big funds de-risking and moving away and having a significant impact on the futures market that is separate from fundamentals of supply and demand.”

Wright is going to be watching the reactions of trading partners carefully to see if BIAV becomes an issue on that front.

“In Canada we can’t eat our way out of our production; we produce too much beef — we have to export. So if we have any border closures, that’s going to make things very, very difficult.

“It doesn’t look like that is possible right now. But that’s always something that’s at the back of the mind of guys that are feeding cattle and guys that are purchasing cattle.”

As of this writing, BIAV had been found in six states including Idaho, Kansas, Michigan, New Mexico, Ohio and Texas.

Although avian flu viruses don’t spread easily among humans, scientists are concerned they could jump to species like pigs where avian and human flu viruses could mix and mutate into something that more readily infects humans.

In a recent update, USDA scientists suggested the HPAI may not be spreading via migratory birds as previously thought but possibly through milking equipment and dairy workers handling milk.