26 June 2020
The livestock market has been significantly impacted by the outbreak of COVID-19. Initially, prices weakened on the closure of restaurants and the expected slowdown for meat demand. However, this bearish tone was quickly superseded as abattoirs shut down due to the virus spread, significantly limiting supplies. During this time, fresh 50’s cuts of beef (ground beef/beef trimmings that are 50 per cent lean, 50 per cent fat) traded up to 2,000 per cent higher (USDA AMS). Prices have now normalised; however, there is an uneven supply of cattle and hogs at present and together with the reopening of restaurants, which could cause a surge in demand, extreme price volatility will likely remain for some time.
Globally, the impact of COVID-19 on consumers has been relatively consistent given the strength of lockdown measures that have been put in place. The US has by far seen the largest hits to supply, with slaughter capacity reduced nationally by up to 40 or 50 per cent for cattle and hogs. This has directly impacted US livestock producers, who have either had to euthanise their animals or hold them back on zero weight gain diets. There is no data on euthanising animals; however, the USDA’s latest Pig Crop report suggested far more pigs should have been slaughtered than the released data in the last couple of months has shown. If an animal is euthanised, the producer cannot sell the animal for meat consumption. This significant burden is one of the reasons why government subsidies have been enacted so rapidly. And although the producers are the ones who are targets of the subsidy, many meat packers are also producers. Subsidy is paid per volume of production, so large producers will receive more than small producers.
COVID-19 has also meant the world’s meat packers have quickly had to adapt their people-intensive business to operate in the new environment of social distancing. While the meat industry in the US saw mass shutdowns, they have quickly been able to adapt their production lines to allow slaughter rates to return to near normal levels. Where social distancing isn’t possible, they have introduced the usage of personal protective equipment. Despite these measures, meat consumption has a greater income elasticity than most agricultural commodities. If families have less disposable income, due to unemployment or reduced pay, they will likely choose to eat out less and reduce the proportion of expensive meats in their diet. This outlook will weigh on beef and pork consumption even with restaurant re-openings causing an increase in demand.
Chris Gadd, Macquarie agricultural commodities analyst