Call the Market

Leverage and Its Powerful Effect on the Fed Cattle Market

ShayLe Stewart
By  ShayLe Stewart , DTN Livestock Analyst
Leverage is a fundamental tool in the cattle complex that can sometimes be forgotten as cattlemen are taxed with their never-ending to-do lists, and it's not one of the tangible assets of the market. (DTN ProphetX chart)

January can be a challenging month to try to market cattle. Massive snowstorms can make transportation impossible, beef demand can be lethargic after retailers restock following the holiday rush, and sometimes green grass in spring simply feels too far out of reach.

But that hasn't been the case this year. The market has successfully held one of the most sizeable two-week rallies the industry has ever seen for both the live cattle and feeder cattle markets here in January 2025.

Since Jan. 3, live cattle prices have jumped from $196 to $202, reaching new all-time highs for live cattle prices. The dressed cattle sales have had similar success; during the same time frame, prices went from $312 to $320, which is also a new all-time high for dressed cattle prices. Throughout the countryside, feeder cattle demand has been unmatched as week in, week out, prices are noted anywhere from $5 to $20 higher depending on the sale barn quoted and the weight of feeders coming through the ring. All of which has pushed the CME feeder cattle index to $278.31 -- a price point never reached before in the market's history.

So, besides the obvious factors of relentless beef demand, currentness in the feedlot sector and a record-low beef cow herd inventory -- what gives? What's so different about this year compared to years past? While there are several things that I could highlight about the market's current position that differ from years past, I personally believe that both the strategic and tactical management of leverage, primary in the fed cattle sector, has driven the cattle market's rally like never before.

I spoke to a cattleman several years ago when the fed cattle market was struggling -- struggling to get packer participation in the market, struggling to keep prices profitable for feedlot managers, and really struggling in every sense of the word. Having a down-and-out day himself, he said something like, "Maybe the days of the fed cattle market trading higher by the dollars are done. Maybe this is the new name of the game which we should expect. The market can trade $0.25 higher this week, could be down $4 next week, and maybe hold steady the week after that?"

While both you and I know the market will eventually turn and packers will once again have their day in the sun when they possess the lion's share of the market's leverage, boy, I'd love to know what that gentleman is thinking about the market these days!

Leverage is a fundamental tool in the cattle complex that can sometimes be forgotten about as cattlemen are taxed with their never-ending to-do lists, and it's not one of the tangible assets of the market. But I must commend feedlot managers in their efforts this go-around to push the market to its highest potential, because if they weren't awake and alert behind the wheel, the cattle market wouldn't see its current gains. Sure, everyone knows that the cowherd is at an all-time low, and that feeder cattle supplies are limited, but it would honestly be easier to trade cattle on Wednesday for $1 or $2 higher as opposed to what feedlot managers have recently been accomplishing.

It takes a special group of tried-and-true feedlot managers to collectively work together to tell packers, week in, week out, that they won't be trading any cattle for steady prices and that if the bids they're going to offer are lousy, they'll simply sit on their pens and wait to market them at another time. But you see, that's also the bold-as-brass attitude that's pushed the fed cattle complex to these record high prices -- and without their willingness to go toe-to-toe with packers, the market wouldn't be what it currently is.

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

ShayLe Stewart