Call the Market

There have been a lot of things about the rally in the cattle complex this past year that none of us could have ever expected. If, back in January, you had boldly proclaimed that choice boxed beef prices were going to go from $325.24 per cwt to $413.17/cwt -- gaining $85.93/cwt in a matter of eight months -- no one would have believed you. Or if you had stated the CME Feeder Cattle Index was going to rally $77.49/cwt over the course of eight months, everyone would have gasped at the audacity of such a statement. But here we sit -- with both points 100% true and the market showing no sign of weakening just yet.

That obviously leads to the next question: Where do things go from here? I'd like to spend some time today discussing this, specifically in the interest of the feeder cattle complex.

Thought No. 1: With the U.S. seeing its first case of New World screwworm (NWS) domestically in a human, it's not likely the border will open anytime soon.

I'm sure by now you've heard that over the weekend, the CDC announced a person traveling abroad who then came into Maryland had contracted New World screwworm. That came as quite a shock to everyone, as we all have been half-braced for the announcement that it was going to eventually be found in cattle somewhere along the border, but in a human?! That wasn't at the forefront of most people's minds. Click here to read the full story by DTN Senior Livestock Editor Jennifer Carrico: https://online.dtn.com/….

But with that positive case on U.S. soil, I don't believe the U.S. border will be opened before the end of the year. I could be wrong, but with risks continuing to loom, one would hope that handling this matter with the utmost caution is a top priority. Consequently, the border remaining closed is a positive factor for the cattle complex and should encourage prices to continue to remain strong. When the border does reopen, it's likely the market will soften, not only because supplies of feeder cattle and calves will be more abundant, but because the market will react psychologically as well to the announcement.

Thought No. 2: When producers do begin to hold back heifers for herd expansion, that too should drive feeder cattle prices higher.

The dynamics of herd expansion deserve a little more thought and consideration than they've been given up to this point. In 2014-15, it seemed as though the U.S. cow herd was rebuilt almost overnight, and feeder cattle prices went from being record high to tumbling lower in no time flat. That is why the market seems almost anxious for someone to proclaim that, yes, indeed, heifers are being kept, and the beef cow herd is growing. Producers have learned changes in market dynamics could signal when feeder cattle prices are going to soften.

That's not completely wrong -- yes, feeder cattle prices will eventually soften when supplies become more plentiful. But it's not likely the change is going to be as dramatic this go-round in the market. If anything, theoretically, once heifer calves begin to be retained as breeding females as opposed to being marketed as feeder heifers, that should drive feeder cattle prices even higher as supplies will become even thinner. So, dare I say, feeder cattle prices stand the chance to become even higher?

As I mentioned earlier, there's absolutely no way anyone could have foreseen what the cattle complex was going to achieve this year. That is why it's important to remain engaged in the marketplace and to think about opportunities that could lie ahead. In rallying markets like this, the sky truly is the limit.

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

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