Call the Market

It's been a wild ride tracking the feeder cattle complex over the past five months. Throughout the early part of the year, demand was incredible, except for some pressure in April, the complex successfully traded mostly higher. But after the market began to stall out and chop sideways in early summer, which was then followed by the equity market meltdown in early August, the market had to scrap and fight for its daily wins up until just two weeks ago.

It wasn't until Nov. 15 that the spot January feeder cattle contract was able to break above the market's 100-day moving average, which had previously been a resistance threshold the market was uncomfortable challenging. But it's almost like something clicked in the minds of traders and buyers throughout the countryside during that time. They realized supplies of feeder cattle really were thin and it was going to be a race through the year's end for buyers to be able to scrape up the inventory they yearned for.

Since the market powered above its 100-day moving average on Nov. 15, the complex has been well supported ever since by its resilient fundamentals. Since then, the CME Feeder Cattle Index has rallied $7.07 to $259.38, which is a price point the market had never traded at before this past summer.

But I think there's a valid lesson to be learned from Dec. 2's lower trade in the feeder cattle complex that we would be remiss to overlook. We know commodity markets, and the cattle markets in particular, are heavily influenced by external pressures. Often, we as cattlemen grow frustrated with the market's ability to be swayed by external factors.

Whether it's pressure from the equity markets, managed-money funds, or whatever other driving factor traders look at for the day, the cattle complex is easily swayed. Thankfully, the market sits in a unique position where fundamental support is so strong, traders cannot deny its power. Dec. 2's trade is a perfect example. On that Monday, traders elected to send the complex tumbling lower, most likely as a decision to capitalize on some short-term profit-taking. But low and behold, by Tuesday, Dec. 3 morning, the complex was back to trading higher as traders looked at the fundamentals and simply couldn't argue the market direction needed to be higher.

We know at some point the market's leverage position will again turn and favor packers when supplies become ample in the countryside; but cattleman sit in a unique position right now where demand is strong, supplies are tight and thankfully prices continue to pay out lucratively. And, as the old saying goes, we might as well make hay while the sun is shining!

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

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