Harrington's Sort & Cull

A Wedge of Black Swans

John Harrington
By  John Harrington , DTN Livestock Analyst

From social media to cable news to dying breeds of print journalism, "black swans" just don't get much coverage these days. Then again, I suppose if we could count on biweekly postings, blogs and columns on the subject, it would pretty much redefine the nature of the beast.

Unlike their iconic white cousins, black swans fall very low in the pecking order of the Audubon Society's annual bird census. Indeed, prior to 1606 when Dutch navigator Willem Janszoon became the first European to set foot on the western Australian coast, the image of black swans struck most of the civilized world as fanciful as unicorns and mermaids.

Eventually, the combined effort of observant Aborigines and open-minded scientists confirmed that black swans deserved as much biological respect as old gray mares. By implication, they also proved that cultural and geographic perceptions of extinction, on one hand, and expansion on the other, can be a very fine line.

Of course, the reality of black swans flying across Australia these days (as well as in other Southern Hemisphere flight zones) is beside the point. The black swan reference has taken on economic and market importance. Specifically, it's become a telling metaphor, one helpful in describing elements of surprising, unexpected and unpredictable market behavior.

If you ask me, markets defy maps, instruction manuals and scatter charts more than professional analysts and reporters ever care to admit. That's what I initially wanted to suggest: the shortage of black swan copy has more to do with a naive belief in the predictability of markets than it does with any nonsense that real surprise has gone out of fashion, fully harnessed by empirical fact-gathering and scientific analysis.

The simple, undeniable truth is that 2018 (so far) has somehow attracted quite a bevy of black swans. Many vary in terms of size, strength and maturity. Nevertheless, most can still make some claim to price-moving potential.

The year's first black swan arrived in the form of President Trump's trade war and aggressive tariff-raising policy. While his pre-election campaign overflowed with China and NAFTA bashing, I think it's fair to say that neither friend nor foe anticipated the unleashing of such extreme protectionism and ferocious free-trade assault.

The next market shock was not sparked by the caprice of government, but by the ever-present randomness of Mother Nature. Severe drought baked much of the Southern Plains from early spring to late summer, forcing a much larger cow slaughter than expected as well as the placement of larger waves of light feeder cattle into feedlots.

More recently, a particularly ugly and dangerous black swan seems to be rolling out of China under the name "African Swine Fever." Sometime around midsummer, the first case of this deadly disease -- one that spreads like wildfire and reacts to no known vaccine -- broke out in the heart of China's most productive pork sector. There have now been cases in five Chinese provinces with more than 25,000 pigs culled, highlighting the challenge of containing the highly contagious disease.

Since this "swanling" is still wrapped in mysterious down, no one knows how threatening the wingspan will ultimately stretch. But keep in mind how the African Swine Fever could impact the trade war and surrounding markets. What if the death rate tied to the disease becomes so high (to be sure, it's got a long ways to go in that regard) that a pork-hungry China is forced to negotiate with the U.S. on a variety of issues?

President Trump may have a winning hand on tariffs and not even know it. As strange as it sounds, the negative consequences of one black swan could work to promote the positive potential of another.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

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