I wonder if meat is going to have similar problems as crude as someone here mentioned with the meat factories shutting down. Similar carrying issues. I'm vegan, so not too worried, but it could be a problem for markets and food supply in general.

Brennan Turner writes: 

I think the challenges in meat markets is just a blip and oil markets are not the best comparable.

Long answer: Meat processing plants will open back up as entire factories get sanitized. In the meantime, 3 options emerge for the remaining animals:

1.    Only cattle can be grazed (cheapest option for beef farmers but not an option for hogs or poultry)

2.    Put on low-weigh gain/maintenance rations (still expensive)

3.    Or be culled: 100,000s of animals (if not millions) in the U.S who are supposed to be moved to said plants but simply can't now. Any of these options represent a significant loss for the livestock producer. As plants open back up, in order to reduce COVID-19 contagion risks, it's unlikely they'll be going full tilt (maybe closer to 60-70% of capacity).

As a result, I believe a few scenarios will emerge in the coming weeks:

 1.    Those who can pay more for meat, will continue to do so, but with more and more people on the unemployment line, this number will drop which would lead back to lower meat prices in the medium term (I.e. 3-6 months).

2.    We're already seeing an increase in demand for the local butcher and thus, one area I'm watching closely is the D2C game (Direct to Consumer); I've already seen a few of my cattlemen friends around North America kill a few of their own animals destined for the plants, but instead of just dumping carcasses in the manure pit, they're capturing the surge in D2C demand from their local consumers. And yes, dumping animals in the manure pit is often how they're disposed of…great organic fertilizer for the crops!

3.    With less animals to feed, and/or animals on smaller rations, this is a significant hit to the feed line item for grains and oilseeds. Cash corn prices in many areas of the Midwest (usually the corn demand epicentre) are already below $3/bushel thanks to an ethanol market that needs 50-60% less corn than 3-4 months ago! Considering that less than 10% of farmers actually hedge in the futures markets, this means a lot of farmers are swimming pretty naked right now. My last point echoes Mr. Vince in that that the ripple effect will be deep and long. Small-town America in the agricultural heartland could see significant demographic changes: farmers can't afford brand new equipment or trucks or even eating out in town 1x/week with their family…lots of these local businesses depend on, at bare-minimum, a break-even agricultural economy and, without it, they won't be able to weather the storm coming).

Not to patronize any of the List, but this will be a major reset of the scales in the agricultural landscape. I think there'll be major regulatory changes to the meat processing sector i.e. in a intense twist of irony, I could see it moving to the extreme opposite of Chinese wet markets. Further, there's going to be a lot of blood on the streets and I'm skeptical that any bailouts for farmers won't be enough for many. Here in Canada, the government is only lending more money to an already over-leveraged farmer (but students are getting $9 Billion or $1,250/person/month, no strings attached!!!)

I left NYC in 8 years ago to go back to Saskatchewan and help my family's farm be a little more structured/professional. This spring, we plan to seed ~55,000 acres in Sask and 20,000 acres in North Dakota (combined, ~5x the size of Manhattan). Agricultural markets are unapologetically cyclical (as are almost all commodities). What we're seeing now is the exact reason I implemented some serious SOPs and a somewhat overburdening pay down of debt during the good times of 2012-2016. However, because we've done this, we'll be able to weather the storm financially, no matter how bad it gets. The high-interest rate environment of the 1980s continues to come to mind, although I haven't had a chance to dig into the all various ripple effects back then, but I think there could be some similarities.

Bottom line is that, much like many other industries, the agriculture's big players will get bigger as the under-capitalized and under-prepared have to throw in the towel (be it now, or when the further over-leveraging catches up with them). I'm undecided if we want to expand our farm further, but it's either that, or all the pensions and endowment funds will buy up the land around us (assuming they've got pocket change to play with still), and the farmer is toast in the long-run over impossible cash rent costs. Thus, to respond to the conclusions in the Bloomberg piece, the U.S. will not be alone in this restructuring of agricultural economies.

Stefan Jovanovich writes: 

Questions for BT: Could you explain why you think the cash cost for rentals will go up? Don't the consolidations suggest that there will be fewer smart operators like you and more absentee landlords like the British Land Companies in the last third of the 19th century? 

Brennan Turner replies: 

Institutional investors always have deeper pockets than the local farmer/investor. And they are far from absentee landowners, as many have ESG requirements these days and are very protective of their generational investment. (They're not making any more land!) Ultimately, there's way less leniency and whoever can pay, will usually pay. Land ownership/operator has gotten fairly ruthless these days.


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