Call the Market

It's a trying task to pinpoint how the chips are going to fall in the cattle complex given the ever-changing dynamics in the marketplace. For an industry that looks to seasonal trends for direction and reassurance, we need to thoroughly process how the current challenges at hand could affect the market moving forward. With the biggest question currently: Is the reduction in throughput going to hinder the live cattle market's ability to see a sizeable spring rally?

I wish I had a crystal ball to make our lives a little bit easier, but unfortunately, we're just going to have to ride this one out and see how the chips fall. The reason I'm concerned about the reduction in throughput is because it has a significant ripple effect on the greater marketplace. Not only does the lack of weekly slaughter capacity affect fed cash cattle prices, but it also affects showlists for the weeks to come, boxed beef prices and potentially the market's seasonal norms. Let's spend a little more time talking about each of these points.

First, the reduction in throughput inevitably affects fed cash cattle prices. Naturally, if packers are processing fewer cattle on a weekly basis, that reduces the number of cattle they need to procure from the cash market and consequently minimizes the leverage feedlot managers have worked vigorously to acquire. This is problematic given the time of the year we are in, as feedlot managers want to possess the most leverage possible so they can hopefully drive the market into a lucrative spring rally ahead of the summer months when market-ready supplies naturally grow and cash prices wane. If packers don't need as many cattle right now because production speeds have been slashed, it's natural for feedlot managers to wonder if the market is even going to see a spring rally this year.

Second, the reduction in throughput logically affects showlists, which is a compounding issue. Feedlot managers know the tightest supplies of the year for the cash market are normally during the later part of the first quarter and sometimes trickle into the second quarter. But with last week's slaughter a mere 508,000 head, showlists can begin to back up quickly. We must look at this as a two-pronged issue because not only do we have the cattle sitting in the yards on a per-head basis, but those cattle are considerably heavier than they were a year ago. So not only is this an issue of numbers (the number of cattle sitting in feedlots ready to be marketed), but also a pound issue as those cattle are trending well over 50 pounds heavier than what carcass weights were just two years ago.

Finally, it's very likely the current reduction in throughput could hinder the seasonal norm in boxed beef prices. Since the end of February, the market has seen an abnormal boxed beef rally; but as of late, prices have turned mixed. The reduction in throughput has only exacerbated the thin supply of beef, and some retailers have pushed back on the price of beef, which is why we've seen boxed beef prices close either mixed or lower in the last 10 days. Normally the market sees its greatest rally in April through the end of May as consumers look forward to grilling season. However, if boxed beef prices are already at the upper end for price, the question naturally becomes: How much of a rally remains for this spring market?

Needless to say, a reduction in throughput for the unforeseen future is a major hurdle for the market to navigate around. You can see from the points listed above this is a multi-faceted issue that could gravely affect the market's seasonal norms.

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

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