From Our Side of the Fence

Justin AngellBy JUSTIN ANGELL
EMCC Owner/Partner

So in a time like this where do I start? The one thing I don’t want to do is beat the dead horse like the media is. Coronavirus curve has been flattened, the emergency is over and we all need to get back to living and back to work. With all the beauty parlors closed, has anyone else noticed how many fewer blondes we have now?

The persistence of some especially liberal and scared governors and medical personnel to insist we maintain a lockdown for another month or two is easy for them to defend. If we stop the lockdown and social distancing rules are relaxed there will be more cases and deaths from both COVID-19 and the seasonal flu. But the best analogy I’ve heard is shutting down our economy to protect citizens to the fullest degree is like reducing the speed limit on the interstate to 5 mph. It would be true that at 5 mph there are no crash fatalities but there is also no progress.

I believe it is urgent that we ramp up the economy and try to eliminate the better part of 30 million unemployed people ASAP. Part of this effort must include terminating unemployment checks that are so generous because they encourage not working. We’ve all heard the stories.

We shall all see soon if the miracle that is the American economy can be resurrected. As far as the beef business there is no way to sugar coat it... we’re (redacted profane superlative). Running at approximately 60% capacity, the beef packing industry is behind by over a half million fed cattle that should have been processed by now. At the current rate we are adding 200,000 head per week to that total backlog of finished and overfinished cattle. In the next three months, there is great speculation as to how to absorb 1,000,000 extra fed cattle. What is a fed steer worth if he can’t be processed? Because he continues to eat $3 every day he actually becomes a liability doesn’t he?

Is there a historic precedent set that can guide us into a favorable path? Actually there are two. The first is very logical and has happened in the past. Basically these huge overfed cattle will find their way to the cow plants and will be processed there at cow price. I think that will probably begin this month, so if you have pound cows to sell the sooner the better.

Hard to imagine but heading into a second possible, but less likely scenario, it is possible that the June fat board could fall to much less than $.65 cow price at expiration.

If you don’t think so, all we have to do is look at the May oil contract that one day before expiration started that Monday at $18 then collapsed into negative territory closing at a negative $37. At 1,000 barrels per deliverable contract, all long positions when faced with being required to take delivery actually paid a counter party to assume ownership of their paper long position. Every contract lost $55,000 in one day.

So how does this affect the beef business? A few days before this happened, the CME had to change the computer software and probably a few rules to allow negative trade in commodities. The net result of this is anyone who wants to take a long/supportive price position is now opened up to unlimited liability.

Every explanation how this could happen goes something like this. There was too much oil, there was no place to store it, they are still pumping oil and sending it down the pipeline, demand has faltered, the contract was deliverable and not cash settlement. Every explanation I’ve heard of why and how this could happen in the oil complex can apply to June fed cattle with the one exception being unlike oil that can sit in a tanker for many months, cattle are perishable.

Of course the third precedent from history is euthanasia like the hog and turkey and chicken guys are doing now. Only difference is our burial trench has to be a lot deeper.

Another bit unnerving financial item I’ve been following for several months is Deutsche Bank. Yes one of the largest banks in Europe has slowly been failing with the stock price falling from $90 to under two dollars. Deutsche Bank is now liquidating their client’s gold positions settling claims to physical gold with a depressed cash value.

The bank’s explanation was something like this. “Because the physical delivery of precious metals is not possible there is no option to take delivery of this commodity.” Basically because this bank can no longer meet its obligations financially, it changes the rules. That might work in this case with cash settlement of gold deposits, the problem is Deutsche Bank has exposure to $75 trillion of derivatives.

That number is so big and the concept what derivatives are and can do is beyond me. One concept it took me a while to grasp it is that every financial asset is someone else’s financial liability. The exception of that is gold and precious metals. So $75 trillion of derivative liability at Deutsche Bank is $75 trillion worth of assets for someone else. The only thing I know is the coronavirus popped an economic bubble here, but I cannot imagine what a sudden evaporation of $75 trillion off of other’s balance sheets would do to a global economy leveraged the way we are now. Just think of the domino effect more in terms of an avalanche or tsunami.

FYI gold has been holding firm at over $1,700 per ounce this month, but economist Lynette Zang calculates the true value of gold at $12,000 per ounce, but has commented that a world of $12,000 gold will not be a good place to live.

Enough of that. So let’s take a page from Little Schyler‘s article last month and try and find a silver lining. Throughout the month I just took the chance to jot down some good things that are a result of this era.

Good things:
• Time to reflect about what is important to us.
• Time to spend with our families especially the kids out of school
• Time to actually get done everything on the household “to do” lists
• Environmental recovery in many industrialized areas of the world
• Working from home
• Hand washing
• Relaxing by staying at home without there always being somewhere to be
• Telemedicine advances
• Education without a college professor
• Appreciation of good health
• Appreciation by the general public for food
• Cheap gas
• Soon really cheap trucks
• General appreciation for local lockers to evade major packers with direct farm to consumer system
One thing I will have to concede. The pillage of the American cattle industry has allowed the Packers to do things that no cattlemen has been able to do in my lifetime. Generally speaking, we are all finally united against a common enemy.
• Created a shortage of beef to the previously unappreciative consumer
• Broken a price ceiling for boxed beef that was formally beyond any cattlemen’s imagination
• Shown us the danger of having foreign corporations control our food supply chain
• Sparked a renaissance of local meat harvest, fabrication and processing going directly to the consumer

So finally I want to conclude this article with a thank you for everyone that has worked with us to make the Boonville venture beneficial to everyone. Recently when it became decision time, something came to mind from a few years back.
As many of you know my oldest daughter, Sierra, wrote a book that was basically a three generation family history of exploits and business ventures.

During an interesting father-daughter conversation, she related to me one of her main conclusions. “Angell men are creative and innovative in business, but seem to be loyal to a fault and as change occurs they try to hang on too long.”

This is not a goodbye. We will continue to loyally serve our Missouri Valley customers, but in a different way. Looking down the road to a few new things we’re planning, I look forward to writing the next chapter with all of you.