Goldman Sachs Says Cattle Are As Precarious As Oil

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Dairy cows stand in a paddock on a beef farm in West Canaan, Ohio, Thursday, April 30, 2020.

Dane Rhys | Bloomberg | Getty Images

Commodity research manager at Goldman Sachs believes the two big commodity stories for 2021 and beyond will relate to oil and livestock.

The forecast comes at a time when the coronavirus pandemic has prompted many countries around the world to shut down effectively.

This created an unprecedented demand shock in the energy markets, with US oil prices falling into negative territory for the first time in the last month.

The two main oil benchmarks have posted modest gains in recent weeks. However, Brent crude futures and West Texas futures are still down more than 50% in early 2020.

“Investors don’t want to hear anything about oil. They’ve been beaten, they’re done with this space (and) it’s going to take a long time to get them back, “Jeff Currie, commodity research manager at Goldman Sachs, said on a video call with journalists last week.

The coronavirus epidemic has also taken its toll on the food industry, with farmers now facing a marked market imbalance.

As a result, Currie said he believed the only other commodity market “as precarious as oil” was livestock.

“They both share something in common: you damage the supply, it takes time to get it back online,” he said.

“We had a problem with livestock in this area … We now have a very serious problem,” added Currie.

Food insecurity

Containment measures have been implemented in 187 countries or territories in the past few weeks and months to try to slow the spread of the coronavirus.

Restrictions, which vary but largely include the closing of schools, the banning of public gatherings and social separation, have forced many restaurants to close.

The collapse in demand from the hospitality industry would have forced some American farmers to let fresh fruits and vegetables perish, while dairy farmers had to pour in excess milk.

Packages of various meats are seen in a supermarket refrigerator in New York. As the coronavirus spreads to meat processing plants, the United States faces a major shortage of meat.

John Lamparski | SOPA Pictures} | Getty Images

Meanwhile, a slight increase in Covid-19 cases in meat processing plants has resulted in closures and slower production. As a result, there is growing concern that the industry can meet demand for pork, beef and chicken.

At the same time, food banks have reported massive shortages. Feeding America, the United States’ largest network of food banks, has warned that the number of “food insecure children” in the world’s largest economy could reach 18 million following the Covid pandemic- 19.

This is more than the record $ 17.2 million recorded by the United States Department of Agriculture (USDA) at the height of the recession in 2009.

What do oil and meat have in common?

Bank of America Securities analysts said in a research note released late last month that US meat industry breeders are likely to “face huge financial burdens” due to the coronavirus crisis.

Pork processors are expected to undergo the most plant closings, analysts said, while beef processing was seen to be in a better position.

Bank of America Securities analysts have stopped warning of empty meat cases at the grocery store anytime soon.

But, they stressed that these concerns “could get bigger” if the factories couldn’t reopen.

A farmer checks young female pigs on a hog farm in Smithville, Ohio, United States, Thursday, April 30, 2020.

Dane Rhys | Bloomberg | Getty Images

President Donald Trump said via Twitter on Saturday that the U.S. government would begin buying $ 3 billion worth of agricultural products from U.S. farmers over the next few days.

He referred to the USDA’s Farmers to Families Food Box program, which is aligned with the ministry’s $ 19 billion rescue plan announced last month.

Goldman’s Curry said herds have been “drastically reduced” for cattle and hogs in the past few weeks.

“And what do oil and meat have in common? These are important drivers of inflation in emerging markets, “he said. “It will be the two big commodity stories, I think, that will be important as we look to 2021 and beyond. “

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