The Market's Fine Print

Chances are the engineers of seasonal schmaltz at Hallmark have never looked to the Rolling Stones for Christmas inspiration. The lyrics of "Beast of Burden" and "Get Off My Cloud" hardly conjure images of wise men riding camels or angelic hosts proclaiming.

Nor is it likely that Macy's et al have ever considered employing Mick or Keith to play Santa for budding consumers and their spendthrift parents. Indeed, some stuffy guardians of the yuletide might argue that the inhospitable laps of Scrooge, the Grinch, and Donald Trump would be more appropriate.

Yet who better than Jagger, the great contrarian and bad-boy of rock, to hand out the questionable presents under this year's cattle market tree. Regardless how one might joyfully spin the expectations of the black-and-blue beef industry, visions of sugar plums dancing they are not.

No one could show more style in celebrating this price-challenged, equity-draining holiday, shouting and hissing his way through Santa's workshop with a carol both strange and painfully fitting on his fat lips: "You Don't Always Get What You Want."

With feedlot losses averaging just under $200 per head in 2015, that's putting it lightly. "Rock on, rock on," the cattle crowd would no doubt chant, at least made temporarily ecstatic by how this icon of soul seems to emblazon market agony in song.

But brace yourself for the chilling silence that's sure to fall over the Christmas arena the moment Mick unleashes his next stanza: "But if you try sometimes you just might find you get what you need."

Really?

Is it possible for a market to "know" the difference between what participants WANT and what they NEED? That's a tough way to put it. Frankly, I'm not sure. But there does seem to be a tension between market-want and market-need that makes sense. The more market wants (i.e., profits, growth) fail, the more market needs (i.e., corrective forces) materialize.

In short, markets played upon reasonably level playing fields tend to be self-correcting. I'm not enough of an economist to say how well such an idea holds up in the face of global data. Yet it's been kicked around long enough to at least be considered a plausible theory.

The market road from frustrated wants to growing needs can be full of rocks and potholes, an obstacle course navigated by the incentives and disincentives of price. Accordingly, the market may not always give you what you want, but if it has healthy powers of correction, you may eventually get what you need.

Regrettably, such a model hardly precludes the necessity of an understanding banker and fairly deep pockets.

So how does all of this relate to Cattle Christmas 2015? I think it helps us see how this sorry season of gift-giving (maybe stockings filled with used "Feel The Bern" mugs and Gatorade) could eventually lead to more generous holiday fun over the next several years. For example, let's take the changing case of bred heifers.

Just a short Christmas ago, bred heifers were at the top of every cattle wish list in Whoville. The staggering profits seen throughout 2014 understandably made beef producers drunk with the bullish prospect of herd expansion. We're talking hover boards and drones, only cooler.

Such a hot fever caused calf and yearling prices to explode in the first half of 2015, a fire further stoked as new pasture potential steadily improved. With many investors betting that the late-year bred heifer trade would easily hold the $2,500-$3,000 range, profit potential seemed unlimited.

How many speculators signed on? Fed cattle slaughter through the end of October tells a story of amazing popularity. While the number of fed steers though the first 10 months of the year (i.e., 12.86 million head) fell less than 2% short of Jan-Oct 2014, the heifer kill (i.e., 6.11 million) fell a whopping 13%.

Next month we'll receive even better evidence regarding the bred heifer frenzy when the Jan. 1 cattle inventory becomes available (i.e., Jan. 29). I expect to see the biggest year-to-year jump in beef cow numbers since the mid-1970s (possibly 1.5 million head more than the start of 2014).

Unfortunately, the great bred-heifer project has turned into mission impossible. Following the price implosion suffered by fed and feeder markets since late summer, the value of bred heifers have also snowballed lower. The best prices of the fourth quarter have ranged no higher than $1,300 to $1,800, often netting former expansion bulls less money per head than the original cost of the unbred animal.

I know it's not much of a silver lining, but at least the market seems to be "working" to give us what we need down the road (i.e., firm brakes on expansion, and certainly not another large class of bred heifers in 2016). Recognizing that beef supplies were overwhelming, softening demand (for whatever reason), the market has quickly adjusted prices to avoid further tonnage problems next year and beyond.

For those still shivering in cold comfort, maybe it would help if Jagger and the Stones burned up the curtain call with "Satisfaction."

Something tells me that many of you know this classic anthem of frustration by heart.

John Harrington can be reached at feelofthemarket@yahoo.com

For more from John see www.feelofthemarket.com

(AG)

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