We all have times in our lives when we wish we could once again talk to those who have gone on before us. Personally, I’d give almost anything to sit down over a cup of coffee with Dad, maybe a cribbage board between us, and talk about anything and everything. Professionally, it would be fantastic to be able to tap into the livestock market knowledge of my good friends Walt Hackney and John Harrington. Unfortunately for the industry as a whole, both left this world in 2019. Both were incredible analysts, having lived their entire lives as part of the cattle industry. Both were good writers, though there was something special about John. He could weave a piece filled with information and entertainment like no one else. I would truly appreciate his opinion on all that is going on these days. But that isn’t going to happen, at least not without a séance, so I will share with you what I see going on in cattle.
I’ve had a number of conversations on the subject of late, and my opinion is shared by many in the industry: The cattle market is a fascinating study of supply and demand at work. Incredibly strong demand at the beef counter has pushed the boxed beef price to roughly $450 per 100 pounds. On the other end, supplies of slaughter ready cattle are backing up leading to reports of cash cattle trading between $95 to $110 per 100 pounds. While low in comparison, this is actually an improvement over what has been seen in the last couple of weeks. The difference between the two is what is considered the packer margin, running record high at more than $300. The supply side is screaming about breaking up monopolies and investigations, the demand side is reporting fast-food chains, restaurants, and grocery stores running out of beef.
Back in my high school days, our football coach used to tell us over and over how a team was only as strong as its weakest link. One way of looking at the cattle industry is to view it as a chain, starting with those running cow-calf operations to the end-user of processed beef. The broken link that has shattered the industry is the processing plants where cases of Coronavirus have skyrocketed and forced the giants of the industry to shut the doors. The human element, those working in the packing plants, have unfortunately proven to be the Achilles heel that could bring down the entire system.
The fighting within the industry is understandable, but dangerous going forward. One theory to the futures market screaming higher the last couple of days is the threat of investigation into the packing companies themselves, though I haven’t seen cash bids increasing beyond what I talked about before. The danger is indeed the beyond.
Specifically, Beyond Meat and all the other fake meat companies. A look at the weekly chart for Beyond Meat’s stock (yes, the same Goldilocks Principle applies to stock prices) and I see a strong secondary (intermediate-term) uptrend pattern (for additional discussion, see Friday morning’s Chart of the Day). The stock closed Thursday (May 7) at $122.66, up 155% from its low of $48.18 posted the week of March 16, just as all Covid-19 hell broke loose in the United States. Making matters more interesting, the company Beyond Meat now seems to be the darling of the CNBC financial news network, particularly its Mad Money star Jim Cramer. The brighter the spotlight shining on fake meat, the longer real meat will run in the shadows.
As I’ve said before, the normal we used to know doesn’t exist anymore. Covid-19 is considered by many to be a Black Swan event, though I don’t see it that way given how many scientists and analysts have called for a global pandemic all while a number of countries work on dangerous viruses with the potential for being weaponized. What I do see is an unstable, and what looks to be an unsustainable industry reaching its tipping point (I highly recommend Malcolm Gladwell’s book The Tipping Point), or Point of No Return. It is becoming increasingly likely Covid-19 will prove to be the factor that pushes the beef industry over this tipping point, down an unfamiliar path that includes Beyond Meat and the other lab grown proteins taking over.
I can hear you out there, and I don’t completely disagree. “You are crazy!” you say, “The United States will always be real meat eaters!” Maybe, but we also said we would always be a petroleum-based society as well. As we speak the one auto-maker whose stock is climbing is Tesla, the leader in the move away from fuel based vehicles. Remember when movie theatres were a thing? How about when people traveled to go to meetings? Coronavirus has changed all this, with people more than happy to watch new movies at home while preparing for online meetings the next day. The future is now, and yes, it is far different than what we would’ve expected it to be mere months ago.
Last weekend, the Oracle of Omaha Warren Buffett gave his annual Berkshire Hathaway talk to an empty stadium, questions asked to the still young 89-year old by CNBC anchorwoman Becky Quick. A couple of Buffett’s most notable quotes were, “America is going to move forward over time…” and, “You can bet on America, but you’re gonna have to be careful on how you bet.” As we do indeed move forward, smart money seems to be flowing toward the fake meat industry, one that could more easily be brought under government control (for an example of what I’m talking about, see the recent news of the United States looking at the possibility of forming a national oil production company similar to Saudi Aramco), while the business of real meat becomes the equivalent of penny slots.
When the history books are written, one of the footnotes will be how a weak link in the chain took the meat industry up to and Beyond the tipping point.
Until next time,
May 8th, 2020