Improved profit opportunities have returned to the cattle market, but the unprecedented volatility of recent years is likely to continue, a well-known market analyst said during a report at the summer meeting of the National Cattlemen's Beef Association.
Improved profit opportunities have returned to the cattle market, but the unprecedented volatility of recent years is likely to continue, a well-known market analyst said during a report at the summer meeting of the National Cattlemen’s Beef Association.
Colorado native Randy Blach, the longtime chief executive of Cattle Fax, a Denver-based market research firm, outlined various factors contributing to seesawing markets in recent years.
Fed cattle prices have rallied 50 percent since last fall, a seasonal swing that is about double the average, he said.
“We’ve been able to hedge a lot of cattle at a profitable level,” he added.
Still, he also displayed charts showing dramatic swings between profitability and losses that have fed a growing sense of unease among cattle producers.
“This is the new world we live in,” he said. “We’re going to see more of this volatility. Is it going to slow down? I’m not sure it’s going to.”
The trend is not unique to the beef industry, he insisted. Grains, energy and the stock market in general have also gone through similar periods of unusual volatility in recent years.
Export growth has been robust this year. In addition, Blach attributed much of recent seasonal strength to what he called “featuring activity” by retailers, which created “demand pull” and led to a big upward push on prices.
Back in 2015, when cattle prices were at all-time record highs, retailers had no incentive to promote beef because there was no profit margin in it for them, Blach said. Retail activity sagged while the market was confronted with the “single biggest one year increase in meat production” the country had seen, he said. A backlog of over-finished cattle being processed at heavier weights compounded the problem, he said.
“The feeding industry has been much more current through the spring of this year, so we went from one extreme to the other,” he said.
But, he added, retail featuring activity has slowed and cattle on feed numbers have swelled, which is particularly worrisome in certain regions like the Midwestern Corn Belt, where the number of cattle could put a strain on existing slaughter capacity.
“We’ve got plenty of work to do to harvest these cattle,” he said.
More optimistically, he said there was some indication the industry is shifting back toward pricing more cattle using negotiated trading agreements.
“We have seen a gradual steady increase in cattle trading in the cash markets,” he said.
Rank-and-file cattle producers aren’t easily persuaded that market fundamentals alone deserve all the blame for the rollercoaster ride they’ve been on the last few years.
Chris Hitch, a cattle feeder from Guymon, Oklahoma, who was sitting in the front row of the live cattle marketing committee during Blach’s report, said while he agreed with the overall fundamentals Blach described, he still believes high-speed trading exaggerated their effect on the futures market.