Harrington's Sort & Cull

The Bullish Power of Anticipation

John Harrington
By  John Harrington , DTN Livestock Analyst
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What a week, what a month, what a year. We're running out of bullish adjectives to describe the remarkable performance of the fed cattle market. If country prices were to seriously implode in early May (and forward thinking cattle buyers signaled no such worry on Thursday), 2017 could still be long remembered as one of the most profitable periods of beef production experienced in the 21st century.

Since the year began, the five-market steer average has climbed from $117 to $140. Over roughly the same four months, feedlot break-evens have increased little more than $7 to $8. A beautiful combination if there ever was one. No wonder the DTN cattle feeding model indicates that YTD feedlot closeouts have averaged a per head profit of $279.64.

And to what do cattlemen owe for this mad orgy of money making?

Academics and analysts are no doubt currently at work on long papers of explanation. But at the risk of being over simplistic, I would quickly credit the runaway market to the bullish power of anticipation, both as displayed by aggressive fed cattle sellers and consistently hungry boxed beef buyers.

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Since Jan. 1, deep discounts in deferred live futures consistently painted the marketing landscape for feedlot managers in various shades of brown. The depressed board's message was about as straight forward as the rising dues at Mar-a-Largo (i.e., better to sell cattle sooner rather than later, and if you have to ask, you can't afford it).

Not only were fed supplies historically tight through the first quarter, the potential for beef production steadily shrank thanks to increasingly current show lists and declining carcass weights. The latest federally inspected scale tickets for the week ending April 15 documented steer and heifer carcass weights 30 and 25 pounds lighter than the spring of 2016.

The other powerhouse of anticipation is more difficult to explain, and may even seem counterintuitive, given the same negative board structure noted above. Nevertheless, it has worked to underscore the most extended period of strong beef demand seen in years. Specifically, I'm referring to the remarkable willingness of retailers and food managers to consistently book an ambitious volume of boxed beef with delivery specs of three weeks or more.

In the first 16 weeks of 2017, weekly out-front sales of this kind fell under 1,000 loads only five times. By contrast, the same period in 2016 saw only three weeks with total business over 1,000 loads.

Clearly, beef buyers weren't taking their cues for discounted cattle futures. Regardless, they obviously anticipated strong forces of product demand, forces that somehow flew way under or over CME radar.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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