It is hard to imagine that we have been living with COVID for more than a year now. It seems like yesterday, and forever ago, all at the same time. Last week marked one year since the World Health Organization declared COVID a global pandemic. A year ago this Friday, the first stay-at-home order was placed in California. According to the CDC, from March 1-May 31, 42 states issued stay-at-home orders, impacting 73% of U.S. counties (Link). There is no denying that COVID has impacted all of us in some way.
By now, most of us are familiar with the far-reaching effects of COVID on agricultural markets. We have written extensively about the topic in CMN. To close out 2020, we reviewed some of the main developments (Link). Early this year, we provided a preview for 2021 (Link). We discussed the implications for holiday meat demand (Link) and the implications for fall cattle markets (Link, Link). Before Kenny and I joined CMN, Josh first wrote about the unprecedented level of volatility in commodity and financial markets in early-March 2020. For readers who would like to review the major COVID disruptions, the in-text links will take you to past CMN issues covering those topics.
Instead of reviewing COVID, we thought we would discuss a new data challenge that will become more apparent as April approaches. You might have noticed from reading CMN that we like to provide month-over-month, year-over-year, and historical comparisons when discussing data. These types of comparisons provide context when USDA publishes new estimates and projections. Without historical context, estimates from a USDA report are much harder to appreciate and interpret. However, year-over-year comparisons will become challenging, and perhaps misleading, in the coming weeks and months as these comparisons will be based on time periods in 2020 when COVID was having major impacts on the beef sector.
Let us consider an example to see how making comparisons between 2021 and 2020 could be misleading. The graph provided at the top of this newsletter is weekly FI cattle slaughter. The solid blue line is 2021 cattle slaughter, and the dotted blue line is 2020 slaughter. Notice the sharp decline in 2020 slaughter for April and May. This decline was a direct result of COVID. This year, it is highly unlikely that we will observe the same decline in weekly cattle slaughter. Thus, if we compare the second quarter (Q2) of 2021 to Q2 of 2020, there will appear to be a significant increase in cattle slaughter. LMIC is currently forecasting Q2 2021 cattle slaughter at 7.9 percent above last year. Does this mean that cattle slaughter has significantly increased in 2021? Not necessarily, and it would be misleading to make such a conclusion without clarification. We are comparing Q2 2021 slaughter to a very small number for 2020.
Analysts will need to be careful when making data comparisons between 2021 and 2020. Perhaps, a better comparison is between 2021 and the five-year average (red line in the graph). For example, if weekly cattle slaughter remains elevated above the five-year average, we can conclude that slaughter is historically high. Context matters, and failing to acknowledge the unprecedented events of 2020 would be a mistake. Cattle slaughter is just one example, but it highlights an important point. The same caution will be needed when making any comparisons to 2020, including the prices reported in our Cattle Market Report and Futures Price tables in Cattle Markets Notes.
Spring Market Outlook Video
In case you missed it, The Cattle Market Notes Weekly team – Josh Maples, James Mitchell, and Kenny Burdine – have recorded what we hope will be our first quarterly outlook video. In this video, each of us discusses an aspect of the cattle market as of early March and we provide some expectations for cattle prices over the next few months. We hope that you will find this a useful addition to our weekly commentary. Of course, we welcome your questions and feedback.