By John DePutter & Dave Milne – April 28, 2020
“Piglets aborted, chickens euthanized as pandemic slams meat sector.”Reuters, April 27, 2020
What it means:
Beyond the heavy financial losses and heartbreak associated with culling animals, the pandemic has the potential to upend the usual livestock expansion/contraction cycles.
As all producers know, natural cycles occur within livestock production, with farmers responding to high and low market prices by either expanding their herds or cutting them back. Expansion typically continues until larger supplies cause prices to drop to unprofitable levels for most producers. As the number of animals begins to decline and fewer supplies come to market, prices start to rise and the expansion phase begins again.
There’s no real perfect timetable for the livestock cycles, but generally the hog cycle is around 3.5 to four years, while the cattle cycle is longer, at about 10 to 12 years, simply because it takes more time to eventually bring a calf to market than it does a piglet.
Other factors play into cycles
Of course, factors other than just market prices can play into the livestock cycles, including the cost and availability of feed. Many producers will remember the extreme drought on the US southern Plains from 2010-15. It resulted in the severe feed shortages which forced many producers in the large cattle production states of Texas, Oklahoma and Kansas to liquidate their herds. In 2014, the total number of cattle in the US hit its lowest mark since 1973.
Disease is another factor. On the hog side, porcine epidemic diarrhea killed an estimated 7 million pigs from the time the virus was first found in the US in April 2013 to the end of April 2014, according to the National Pork Producers Council. Those losses helped set the stage for the all-time hog price highs seen in the summer and early fall of 2014.
Through it all, the livestock cycles have endured, even though their timing may not always fall exactly within the neat and tidy four- and 12-year periods for hogs and cattle, respectively.
Pandemic an unprecedented event
With the COVID-19 pandemic, however, we are truly in uncharted waters.
As it turns out, cattle were already at the end of their expansion phase when the virus hit. The USDA’s Jan. 1 cattle inventory report reinforced earlier signals from the July 2019 report that expansion was drying up. And, while last month’s USDA hogs and pigs report showed total US hog numbers up about 4% from a year earlier, it also contained a notable decline in the breeding herd from December to March, and in farrowing intentions for the coming fall.
So, while contraction may have been on the way anyway, the pandemic may end up deepening and prolonging the process. We just don’t know how long the effects of the pandemic may linger, nor do we know how packing plant operations may ultimately be impacted. It could well be that the worst has now passed for the processing industry and that the flow of animals will return to normal in short order. However, in an ominous statement this week, John Tyson, chairman of top US meat supplier Tyson Foods, warned that millions of pigs, chickens and cattle will be euthanized because of pandemic-related slaughterhouse closures.
That sets the stage for sharp price increases down the road, as a smaller available supply struggles to catch up with demand. But the timing of those gains and the expansion cycle remain highly uncertain, dependent on how COVID-19 ultimately plays out.
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