Sort & Cull

As live cattle and feeder cattle markets turned sharply lower, producers and traders alike wrack their brains, pace the floors, and search for any signs to indicate the market's long-term direction amid the recent change of events.

On Jan. 28, the futures complex reached historic prices in both live cattle and feeder cattle and has traded lower ever since. On Jan. 28, the spot April live cattle contract closed at $207.27, but as of Feb. 11 afternoon, the market fell $11.27 to $196. The pressure in the feeder cattle complex has been similar: Jan. 28 the market reached $278.25 but has since fallen $13.48 to $264.77.

Seeing the markets plummet well over $10 in a matter of 10 short days has been emotionally straining as market participants wonder has the high for this cattle cycle been made? Will the market regain its footing and again focus on the promising fundamental reality? Or is the trend now simply going to be lower?

And this is where I hope to bring you some comfort as I personally know this type of market turbulence is extremely unsettling.

First, when the market begins to challenge the direction in which we think it should trade -- or the direction we'd like it to trade -- we tend to hone in on the details. But in this case, I think we'd be better off to step back and look at the cattle complex through a much broader 10,000-feet view.

Doing so, we're quickly reminded the cattle complex has been rallying steadily since last September. During that powerful five-month rally, new contract highs were obtained in both the live and feeder cattle markets, as well as in the fed cash cattle market. The CME Feeder Cattle Index reached all-time highs as well.

Second, we know when prices are at elevated levels such as these, there's a greater intensity of emotional buzz circulating throughout the complex and even the slightest movement in one of the contracts can trigger widespread pandemonium as no one wants to be left behind of one of the big moves. To go along with this point, with the heightened interest of money-managed funds in the cattle complex, I believe this point becomes even more prevalent as the matters at hand aren't just topics of fundamental and technical questions pertaining to the cattle complex, but now are more closely tied to external factors such as geopolitical affairs, the greater economy as a whole, the wider reaching facets of the commodity sector and so on.

Third and last, I want to remind you that no matter how abreast you are on the markets and their ever-changing moves, no one can predict where prices are going to be 10 days from now, 10 weeks from now and certainly not 10 years from now. So, while we all wish we had a crystal ball to guide us and offer some peace of mind about the cattle market, the best thing we can actually do for ourselves and for our businesses is to determine targets and make action plans.

For some, that may mean marketing a portion of their calves at "x-time" to defer some risk. For others, it may mean utilizing an LRP to mitigate some risk. But the biggest point here is we need to remain diligent in our marketing strategies so we can market our assets to the absolute fullest of their potential, which means thinking through a number of different options and being fluid depending on what the market develops into.

I personally remain optimistic about the market for the long term. The cow herd hasn't begun to be rebuilt, and with the U.S.'s limited domestic supply and tremendous demand, prices stand to be well supported for a long-time. Remember, even bull markets have down-dips.

DTN Contributing Canadian Grains Analyst Mitch Miller wrote on this matter earlier this week and also offers some great insight in his latest Technically Speaking blog: https://www.dtnpf.com/….

ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com

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