Before I get into this week’s topic, I wanted to take a quick moment and welcome a new staff member to the WLJ family. Lanette Frye of Three Forks, MT, has joined our team, and we are elated for her to add to the legacy this publication has built. Lanette will specialize in commercial advertising sales but brings a wealth of knowledge, experience and leadership to our staff.
As WLJ goes forward, we truly feel that a team of people is working for a common goal and the group will always be smarter than the individual. Each person at WLJ brings their own skill set to the table, but what we’ve noticed is how personal stances are set aside for the betterment of the company. Each time we make a decision, we ask ourselves how this decision would help our readership. From quality editorial to a skilled sales staff, we feel we are headed in the right direction but without the people reading WLJ we have nothing, so we are thankful to be where we are today and that’s because of you reading this publication we all have dedicated ourselves to. Thank you!
Steadiness and reliability are a bit too much to ask for right now in not only our industry, but across most financial trading outlets. We all understand there’s risk associated with investing in any form. We hear this in commercials, and we even sign off on the legal statement every time we place our positions. However, fundamentals that aren’t aligning perfectly with inexplicable swings need to be explained to a lot of us.
In review, our industry was completely united not too long ago and a major run was about to take flight in the markets. While it held off longer than most anticipated, it did finally arrive. We knew the cow herd was historically light. We knew drought was impacting a large percentage of North America. We knew cattle on feed wouldn’t sustain itself. All of these things we knew. We just had to wait it out.
We find ourselves in a bit of a rut (or market correction depending on your stance) and for the last six weeks that’s been the headline across every ag publication available. So, here’s why volatility plays such a key role in our livelihoods.
If literally everyone from producer to packer knew this run was going to happen in early 2023, why didn’t anyone know there’d be such a drastic selloff of contracts to finish 2023?
I’ve read nearly every reasoning you can imagine. From Livestock Risk Protection insurance policy kickback, heavier carcass weights, influx on Mexican and beef-on-dairy cattle to the chain, and so on. Everyone has a suggestion, but so far no one has the answer.
I do want to add to the conversation that the algorithm usage in high-frequency trading is playing a factor in this as well. Trust is low in stock trading and traders have been looking for places to position themselves. I do think we’ve seen how paper trade versus cash trade isn’t matching even remotely right now, which makes sense as investors are repositioning. Computers aren’t trained for consistency, they are programmed to react to signals.
It’s simply a culmination of factors right now. I don’t think any of the experts are factually wrong in their assessments. Packers have tried to slow down their production and are juggling inputs and outputs, and the slowing has added to the heavier carcass weight trend as well. The industry recently set a record with steer carcass weights averaging 936 pounds, and the next week should set a new record.
Paul Dykstra of Certified Angus Beef said that the “average feedlot days on feed have slowly increased year over year. In the short term, feeder cattle replacement costs in a time of declining supplies incentivize cattle feeders to opt for more days on feed for their current inventory when breakevens show net losses in the future.” I couldn’t agree more with this. He mentions in his article prior to this statement that genetics are helping push this needle forward and it’s absolutely true. We’ve built cattle for the feeder and packer to manage any way they’d like. Couple this with better nutritional science and cattle can be grown at any speed they’d like and since we’ve concentrated our industry on a high-marbling product, the cattle can hit several markets, or as we’ve seen lately, hold a market up too.
All in all, we can’t blame this market correction on one lone factor. We are slowly being adapted to the consistent volatility that plays in today’s trading world. Markets swings are normalcy and in today’s world, bigger market swings are going to happen. Looking at inventory stacked up behind recent reports and seeing how cow slaughter has maintained and the high number of heifers on feed, this market won’t be stalled for long in my opinion. — LOGAN IPSEN
