Call the Market

My all-time favorite cattle market reference came from the late market connoisseur himself, Pat Goggins, who said, "the cattle market is nothing but an attitude."

The first quarter of the year is always an exhilarating time. Cash cattle prices are usually at their highest and there's a natural sense of optimism, and potentially the most stimulating, readily available fed-cattle supplies are at their thinnest availability. As we have officially entered the first full week of trade for the new 2020 year, all these new year charms are flourishing.

Upon spending some time looking over the historical data for the cattle market's first quarter trends, I came to some interesting conclusions. First, although feeders would like to have a season of ease and a guaranteed upper hand in cash cattle negotiations, the first quarter isn't a guaranteed smooth ride. Secondly, there is almost an equal weight of factors pulling the market to fall lower and an equal number of factors pushing for the market to soar higher right now.

Comparing first quarter markets over the last five years (2015-19) shared some noteworthy insights. First, I compared the market's initial open for the new year of the five years and then noted futures market prices for the last day in the first quarter. I then looked at the difference between the two. In three of the last five years, there has been a positive futures market movement, while in two of the five years there was a negative movement. In the three years, the market moved positively: the average price increase was $5.82. In the two years the market dropped, the average decrease was $3.63 in the first quarter from the market's initial open to the last day in March.

Now let's apply these averages to the 2020 market. The 2020 live cattle market leaped into the new year at $125.77. If the market abides by the standards set in the last five years and rallies, the live cattle market could end up some somewhere around $131.59 towards the end of March. If the live cattle market regresses, and bears victim to the five-year trend, the market at the end of March could be near $129.40.

First Quarter Futures Comparisons
Year	January Open	March close	Difference	Cash Market Average
2015	165.67	161.32	4.35	162.43
2016	136.42	132.92	3.5	134.81
2017	114.87	119.95	-5.08	122.96
2018	123.35	113.75	9.6	125.6
2019	123.52	125.7	-2.18	125.27
**
	Average 5 Year Loss		-3.63
	Average 5 Year Gain		5.82
**
2020 Market Application
	2020 January Market Open	2020 Market + 5 year Trend GAIN	2020 Market + 5 Year Trend LOSS
2020	125.77	131.59	129.4

The fastest way to make friends in the cattle industry is to say that the market is going to rally, and consequently, noting potential downsides to the market doesn't gain you any points. Nevertheless, let me remind you, the futures market is only one sector of the entire market.

Numbers are beautiful: They aren't political, they don't lie and they speak the honest truth that most of us avoid (read that again). As we evaluate the upcoming market, it's our job to look at every side, all angles, all possibilities and all potential outcomes.

So, let's begin.

Attitudes of 2020 have been nothing short of positive and optimistic, and rightfully so. Next week the phase-one trade agreement is scheduled to be signed, signaling a substantial win for the agriculture sector as more export opportunities arise with less cumbersome trade regulations.

Even though beef is a higher priced food, the globe is going to be pinched for protein from the long-lasting impact of the African swine fever outbreak. In addition, we cannot overlook the long-term effects of the current fires in Australia. Australia is the third largest beef exporting country, and with its nation being consumed with wildfires, it's going to affect Australia's ability to supply shipments it historically was able to meet in the past.

Let's not forget the current blessings of the market: 2019 ended as one of the strongest years for domestic beef demand and packers have been processing cattle at record-breaking speeds. Just this past week, Cassie Fish with "The Beef" shared that, "This year the driving bullish fundamental is the heavy slaughter pace, which is pulling market-ready fed cattle through the supply chain at the fastest rate in the last eight to nine years."

Lastly, the cash cattle market rallied significantly in the fourth quarter of 2019 and rallied every major holiday week in the last quarter anywhere from $2.00 to $4.00 each time.

The first quarter of 2020 has a lot of questions to answer. Bears will say that lofty placements are going to wane on the cash market's ability to be abnormally progressive -- and we understand the five-year trend for the future's market. Bulls are going to pray that packers keep aggressively buying fat cattle and that both domestic and international demands for beef continue to flourish. Bulls also hope that feeders have learned a lesson in the last couple of weeks about how to keep cash prices on the hook.

It's important we know the possibilities and understand the varying outcomes. At that point, cattlemen are in full control and can bet accordingly.

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

(BE/ES/AG)

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