The amount of risk across the vast landscape in futures trading carries an enormous amount of volatility at the moment. As an article in Sherwood News points out in January, “The best way to approach risk management with futures is not to ask, ‘How much could I profit if all goes as I think it will,’ but rather, ‘How much do I stand to lose if all goes wrong?’”
Fear and uncertainty tied together with strikes, global conflict and a changing economy can really destroy the footing of a good market in a hurry. There’s a lot to discuss this week. We’ll discuss only a couple, but understand there are many more situations out there having an impact on our market. It all adds up.
The current conflict with Iran and the Middle East is having an immediate impact across oil markets, driving up barrel costs by 20-30%. By all indications, our military forces are far superior to theirs, and we’ve displayed this in force. Retaliatory efforts have come in the form of destroying oil carriers, facilities and infrastructures to damage this market in any way.
Additionally, they are taking warfare to devices. At the time of this writing, headlines showed the first cyberattack on a U.S. medical equipment company named Stryker. This will most likely increase until the conflict is resolved. I call it a conflict because we do not yet know what exactly to call it. It’s been called a war, an expedition, a conflict and a challenge. What we do know is that there are going to be lasting implications because of it.
Oil prices are undoubtedly going to impact our industries negatively. My major frustration is seeing immediate gas pump prices soaring, but the oil in that system was the same oil purchased under normal situations. The price gouging is already on full display. Cattle are going to get more expensive to get from point A to point B. This is reality. Secondly, wars are not cheap.
While I appreciate the fact that much of the technology used in today’s conflict keeps human lives safer for our troops, there’s an inherent cost. With a current deficit of more than $1 trillion, war will definitely add to this burden. The conflict has created a ripple effect across other markets, including stocks, where the Dow fell 570 points in a single day. This is going to be a reality until a resolution is in place.
In the midst of this, an anticipated labor strike at the JBS processing facility in Greeley, CO, will start on March 16 at 5:30 a.m., unless a settlement is reached in the midnight hours after this WLJ issue has gone to press. Over 3,800 workers who would process between 5,000-6,000 head per day will be on strike. The union voted 99% in favor of the strike due to unfair labor practices and wages that haven’t kept up with inflation, safety violations, charges for protective equipment and rising health care costs.
JBS currently sits as the world’s largest meatpacker and this facility sits as one of their largest capacity facilities. This will have an impact no matter what. JBS responded to the vote by saying they offered a similar contract to the previously passed contract, but over the past eight months have been trying to resolve the expired contract before negotiations fell flat.
The company has already made it public knowledge that processing will continue by rerouting production elsewhere to keep up with current beef demand. While this soundbite is positive for the cash market, packers are expected to slow their purchasing activity on top of a weakened market over the past four weeks.
Ripple effects will continue here in the marketplace as buyers will have to account for processing capacity, and now with fuel surging, could create an added pressure for the company as they adjust to the current situation the strike has created. According to a CattleFax report from the prior week, there was a net decrease in open interest contracts by 6,029. This was coming off a high of 346,834 total contracts in late February. The report claims this sits even with a five- and 15-year average. Essentially, there is a massive number of moving parts that are all culminating together to create a very uncertain landscape across the multiple markets.
While people like Warren Buffet have claimed, “If you cannot control your emotions, you cannot control your money,” this isn’t possible when the futures markets simply rely on emotionally driven uncertainty or confident aggressive investments. It’s the time of year when fall-born calves are getting preconditioned for marketing and decisions are being made for the financial feasibility for operations that this mixed bag of influencers are going to have on our market for the next little while. Cash markets on lighter calves have held steady so far, but all these situations need to be monitored.
Over the past 20-plus months, analysts have been saying that even when a correction or downturn happens, this market is still at a profitable level for the cow-calf guy. This is the reality we might be facing this spring. — LOGAN IPSEN
