Sort & Cull

If the red-hot feeder cattle trade was a football game (sorry World Cup advocates, I mean real football), some referee should have thrown a flag on the slumping corn market for "piling on." Whatever benefit it lent to further strength in the feeder pit (i.e., implications of cheaper costs of gain) was about as meaningful as Dick Cheney encouraging the Iraqi government to "hang in there."

New-crop corn futures have been sliding hard since early May, pressured by timely planting progress and a fully adequate acreage base. But just when it seemed to be stabilizing in the face of uncertain pollination ahead, the grain market found a new flight of stairs this week to stumble down.

There was plenty of blame to go around, ranging from a larger-than-expected June 1 stocks total (suggested to be a result of smaller-than-expected March-May feed usage) to a record-size bean plot to Garden-of-Eden-quality growing conditions. From Friday to Thursday, December corn toppled no less than 32 cents, closing the holiday-shortened week at the lowest level since midsummer 2010.

Old-schoolers will tell you that such a break in feed costs should have easily justified a $3.50 rally in feeder cattle value. And, as the market actually turned out this week, August feeder futures advanced by 330 points.

Pretty neat hand-in-glove, wouldn't you say?

Yet stressing cause and effect here may be like praising Betsy Ross for securing the nation's independence (not to say she didn't sew a fine flag).

Frankly, I'm not sure feeder bulls even looked in the direction of the corn pit this week. They've been notching new contract highs with breathtaking regularity since last September (i.e., $53 ago). We may be critically short of calves, yearlings and fed cattle. But this market is stacked to the rafters when it comes to inspiration.

It goes without saying that the enormous break in corn prices over the past year has made a tremendous difference in terms of the intrinsic value of feedlot replacements. If cash corn is $3.50 cheaper than it was in the early summer of 2013, marking 8-weight cattle as much as $38.50 higher is nothing more than a zero-sum game.

But here's the lump that catches in the assessor's throat like warm potato salad left out too long at the July 4th picnic. The spot feeder board is not trading $38.50 above 2013. It's clearing last year's market by a cool $65.82.

It makes me think of the famous scene in "the Treasure of the Sierre Madre," the one where the Mexican bandit scoffs at Humphrey Bogart: "Cheap corn? We don't need no stinking cheap corn."

Or something like that.

For more of John's commentary, visit http://feelofthemarket.com/…

(AG)

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