There’s an undertone of apprehension in the marketplace right now as we turn the corner from Memorial Day weekend, immediately diving into the summer grilling season. Summer set in and made its presence known as triple digits were seen in much of the western U.S. immediately after the holiday. Simply stated, summer is here. The nervousness that’s being felt in the market right now is valid. We have less data, more volatility, and a political landscape all sending flares right now. The next few months are going to be chaotic.
Recently, on the heels of the May Cattle on Feed report, the CME Group decided to increase daily limits. The daily limit was a bigger headline since the May report wasn’t too far off expectations. The only turbulence the market saw was due to two extra slaughter days being factored into the numbers, which skewed the data somewhat. This rarity hasn’t happened since the ’90s, so this will balance itself out pretty quickly.
The daily limit change throws a factor into the marketplace that brings more volatility into play. It’s good when it’s in our favor, but keep in mind this move only helps it drop just as fast as it makes it soar. Markets are built on speculation, momentum, and data all mixed into algorithms. In a mythological sense, markets made of wax and feathers only melt when they get too close to the sun. Just ask Icarus how that worked out for him.
In May’s Cattle on Feed report, heifer placement numbers continued to hold their level that suggests retention hasn’t happened yet. There is more optimism on this side for sure in breeding and retaining heifers, but being worth quite a bit for feeders is luring many ranchers to continue to market them. Heifer numbers have maintained a strong percentage of feeder cattle placements suggesting retention still isn’t happening on the national side. This has forced increases in importation and pulling light cattle forward to keep pens and packing houses at maintenance levels.
Herein lies the problem that I see. If you recall, the USDA just took away the July Cattle inventory report that was a big telling point to track heifer data. This can factor into a lot of decision making across the marketplace, especially those in the market of building replacement heifers and cows. Now, without this data, and CME adjusting the daily limit, this creates the opportunity for more volatility without as much warning nor data to back bigger swings. Past market crashes still loom in a lot of head space out there, and this undertone has a lot of us wondering what’s in store. Plus, now the daily limit can swing to an even larger degree each day. Less data and more volatility working together is never a good thing.
That’s as negative as I can get, because there is going to be a wild ride at the video sales this summer. Superior Livestock is set to hold their annual Corn Belt Classic sale in South Sioux City, IA, June 10-11. After that, it seems there will be a major sale each week for the larger video sale companies. Some of the nation’s best cattle will be offered over the next 90 days after that. In this current situation, we are going to see levels not yet seen before. Feeder cattle and yearlings being marketed on the heels of Cattle on Feed reports that are consistently going to show a reduction in inventory between 5-12% of previous years are going to have buyers aggressively trying to fill pen space. That part is inevitable.
What else is inevitable is national politics are going to result in a head-shaking year. The next five months can’t get over quick enough. It appears as though Hollywood, D.C. and the court system are reading the same playbook. The theatrics that are going on, quite frankly, are embarrassing. As a global power country, the chaos and absurdity on both sides of the aisle have reached new heights. This election, assuming both candidates live that long, already has the feel of a Cleveland baseball game where a 10-cent beer met a Billy Martin comment and turned into the biggest riot MLB had ever seen, which just happened to celebrate its 50th anniversary! (It’s worth the internet search if you don’t understand the reference.)
With all that being said, this summer is one we most likely won’t forget anytime soon and the coffee shop will have plenty to converse about. All I can recommend right now is to stay the course and do not deviate. Use the data you have, the experience you’ve gained, and your ability to navigate white waters because this summer is shaping up to be one you’ll want your seatbelt on for. — LOGAN IPSEN
