The Market's Fine Print

Brain scientists tell us there's something about the color green that makes us purr like a well-fed cat. While red fires anger or lust and black stokes fear or depression, the aura of green promotes warm feelings of contentment and security, be it in the form of a lucky string of traffic lights, cold cash, or the first bloom of new pasture.

I suppose the hard-wiring that connects optical greenness with the gray matter of happiness was soldered over millions of years, reinforced each time the harsh whites and barren browns of winter were mercifully washed away by the seasonal warming of the earth.

D.H. Lawrence once described the spring as a green bonfire: "I am amazed at this spring, this conflagration of green fires lit on the soil of the earth, this blaze of growing, and sparks that puff in wild gyration."

Neither scientist not poet, my grandfather was just a weathered old cowman who had spent countless years of worry between hay and grass. I can still hear him coming in from a cold March night of midwifery, cursing himself for turning out the bulls too early the year before and complaining how his eyes simply hurt for the green of turn-out.

Similar eyestrain among ranchers and stockers was common throughout the first third of 2014, a relentless winter season that proved extreme both in frigid temperature and arid winds. Indeed, such green anxiety in the world of beef production has been compounded by a multitude of factors.

Let's start with cattle country's recent history of serious drought, especially the unforgiving summers of 2011, 2012, and 2013, that scorched so much of the Southern Plains, forcing huge waves of cow liquidation. While dry conditions over major grazing areas did moderate to some extent last summer (with selective grasslands stressed less thanks to reduced stocking rates), general rainfall remained quite parsimonious, inadequate enough to preclude significant recovery.

In short, whatever dark clouds manage to rumble across the current radar screen, precipitation amounts will be challenged to fill a cattle cistern still half empty and badly cracked.

Second, prolonging the much-needed economic recovery for feedlots and stockers will necessitate the nurturing of a relatively normal grazing season, both in terms of days on grass and pounds gained.

For cattle feeders, the manageability of third quarter fed supplies depends a great deal upon the number of steer and heifer yearlings successfully enjoying summer camp. Premature placement triggered by poor pasture conditions (e.g., June-July 2011 and 2012) can plug fall production channels before late-year beef demand can be mustered.

On the other hand, the profitability of stocker breakevens hinge on a full grazing season that affords maximum weight gain (e.g., 250-300 pounds per yearling) at minimal cost (e.g., 55-60 cents per pound). Although corn in the bunk is now costing nearly $2 below 2013, optimal grass gain still promises to be 30%-40% cheaper than its feedlot counterpart.

The prospect of seasonal greening is also unnerving thanks to budding signs of herd expansion and what the success or failure of such a long-delayed enterprise could mean for the future of the beef industry. The longer ranchers are forced by Mother Nature to postpone rebuilding the production base, the greater the threat of permanent market-share loss becomes.

Finally, the grass question looms large for many who see it as a surrogate for the crop year as a whole. If grazing potential holds from the Sandhills to the Flint Hills, from the Osage to the Edward Plateau, it bodes well for the productivity of the entire country, perhaps ensuring another bumper corn crop and significantly extending workable costs of gain.

USDA just released the first set of pasture ratings for 2014 and, for what it's worth, the overall picture looks much better than last year. For the week ending May 4, early-season grass was rated 78% fair or better, up from 64% last year and 74% basis the 2011-2013 average. Of the major cattle states, only California was judged to be seriously below the prior year.

For some strange reason, I take more comfort in the "rainy" implications of explosive feeder cattle futures. Despite the fact that corn has rallied more than a buck since early January, despite the stubborn persistence of an ominous-looking drought map, feeder futures have repeatedly set new contracts highs for months and months.

Where's the fear of drought among these crazy bulls? Can their bullish devotion trump whatever the meteorological gods have in store? Does Donald Sterling run a charm school?

With big bets on the table, we know little more than the spring fever tonic is laced with Maalox. But ready or not, pasturing gates are beginning to swing open with cattle stepping onto more or less green carpets that will prove more or less durable over the warming months ahead.

Only time will tell if there's a meaningful difference between dangerous rose-colored glasses and trading specs that are now, understandably, tinted green.

(AG/ES)

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