Sort & Cull

It's one of those dark and depressing cattle market Mondays when you wish the official score keeper would look mercifully upon hopeless duffers and just let them take a mulligan. Since limit losses in live and feed futures clearly indicate that we've woken on the wrong side of the bed, let's reset the alarm clock, roll back under the covers, and take another shot at that whole awakening thing.

Unfortunately, that's not how the real world works. All cattle traders must play the ball where it lies, must answer the alarm clock wherever they find it.

So why have commercials and specs so rudely rousted this morning with near maximum losses at the CME? I'll give you two reasons.

The first involves fundamentals, or at least perceptions of fundamentals. When expectations for higher feedlot sales soured late Friday, buying interest in discounted futures started to run for the hills. Many saw packer unwillingness to entertain higher asking prices as a sure sign that the best seasonal combination of tight fed numbers and strong beef demand had already come and gone.

Always keep in mind that no one has a shorter memory of thankfulness than the guardians of futures. Here sits the original and definitive what-have-you-done-for-me-lately crowd. Excessive gratitude can be a costly virtue.

The second reason is more structural in nature. At least that's the way I see it.

Cattle futures crashed Monday (just as they have increasingly crashed in recent years tied to wild, seemingly unprovoked spasms of volatility) partly because of a chronic lack of commercial buying interest. The specs of the live cattle contract no longer make a practical fit with the real beef needs of end users (i.e., packers, processors, jobbers, retailers, food managers).

From Worthing to Columbus, from Wray to Sioux City, none of the delivery points invite a commodity that is significantly attractive enough (i.e., usable) to stimulate meaningful price competition among commercials.

Here's a wheel that needs reinventing. Until that happens, the presence of commercial longs in cattle futures will remain extremely random, promoting both price volatility and frustration among commercial shorts (i.e., would be feedlot and ranch hedgers).

For more from John see www.feeltofthemarket.com

(CZ)