Call the Market

There's something magical about the beginning of a new year and the hope it brings. For cattlemen, I think it has a lot to do with closing the chapter of one season and preparing for the next. Most cattlemen have sold their calves or are getting close to shipping the remainder of last year's animals, and before you know it, calving season will be upon us and cattlemen will be wearing out gloves, losing flashlights, and jumping into Carhartts a few more times than they'd like.

As a whole, cattlemen are a determined, hard working group of "I won't quit" spirits who believe in getting full use of the day's sunlight. However, at times, folks lose track of the market in their busy lives and miss pertinent market information. Then, when they check back in on the market, there always is an essence of worry as they wonder if things are "where they should be."

The last two weeks have been that typical question of, "are things where they should be," as producers try to weigh all the market's recent happenings and begin to plan for this year's marketing strategy. On the bright side, coming into the new year, cash cattle prices traded steady to higher for most of the fourth quarter and slaughter ran rampant. But, just as soon as you ripped the old calendar off the wall and tacked the new one up, the market hasn't seemed to be as vigorous. Cash cattle trade has been all over, one week $2 higher, the next $1 lower, and throw in about two weeks of steady trade into the mix.

This is where we need to step back and analyze the market for 1) where it is seasonally, 2) what outside factors are affecting its normal behavior, and 3), dismiss our emotion from the marketplace. As we begin to evaluate each piece of the market, things tend to make more sense.

First, it's important to note that seasonally the fat cattle market usually does exceptionally well in the first quarter. It usually takes the market a couple of weeks to shake the holiday food coma before trade begins to beat to its regular drum.

However, as I just mentioned, the last three weeks have been mixed to mostly steady, with both higher and lower trade. Before that leads you to believe the market is underperforming, we need to consider where the market was at leading into the new year, and recognize that the market is trading nearly in sync with last year's cash cattle trade at this time.

Looking at the futures, since mid-December spot live cattle contracts have traded relatively sideways. The cash market coming into the new year was hot, trading higher week after week. As we know, the market has to ebb and flow, it's a cycle of gaining, regressing and holding steady. So, seeing the current fat cattle market remain steady could be interpreted as a positive signal. The market needed to rest and trading steady is a lot better than substantially lower, and we know that with readily available fat cattle supplies dwindling, cash prices could be charged to go higher as packers compete for cattle.

Secondly, we must realize that, though the phase-one trade agreement between the United States and China is positive in its nature and in time will help ag producers, whenever there is a political signing it's going to affect the market.

Let's walk through last week's happenings, for instance. The trade agreement with China was signed on Wednesday. The market dipped significantly lower Thursday and cash cattle traded Thursday with worry where the market was headed and with hope to get cattle shipped out before last week's storm blew in. Nevertheless, though the signing of the phase-one trade agreement is huge for farmers and ranchers, it still affected the market and how trade went about its business.

Lastly, emotion is a component of the marketplace that affects things all too much. You see it with how packers and feeders conduct business; you see it with trade volumes on the board. Last week was a perfect example in the cash cattle trade: Feeders saw the board dipping lower, panicked and liquidated their current showlists. It's much easier said than done, but if we can dismiss emotion from our analytical point of view, we almost always make better marketing decisions and have clearer mindsets when weighing out the reality.

As you spend time weighing the different factors in the market, it's important to remember that the complex is always changing -- sometimes outside factors affect the market, and even though this last year may not have aligned with historic trends, it's always good to understand usual trends. It's not a pessimistic viewpoint to wonder if the market is where it should be; we all need to ask ourselves these questions and better understand the dynamic nature of the industry.

As I've said before, markets work best with active and informed participants -- ask the questions, seek clarity and submerge yourself in information.

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

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