The post-Fourth of July fallout has started. The Choice beef cutout abruptly fell to $325, which created a major selloff in the futures markets. The August live cattle contract was taken down to $182.25 while live fed trade in the southern Plains fell to $188. Northern live trade was at $198 on light volume.
Cassie Fish said in The Beef on Wednesday: “Today’s futures break was mostly an inside day with a lower close following two rugged down days. Lead month August LC closing today $15/cwt discount to the last week’s cash, which reached an all-time high. But given that managed funds have increased in long ownership the last few weeks, the market’s weakness generates liquidation. This week of the Goldman roll finds open interest coming down quickly from its annual high so far, made uncharacteristically in July.”
The big summer video sales got underway last week and cattle feeders bid aggressively on summer yearlings, paying up to $260 for 900-pound steers, which will put those breakevens well over $200. They must know something we don’t because the futures market shows no sign of going that high, but who knows?
Fall delivery calves were a hot item and I imagine everyone had big smiles. The calf buyers paid no attention to the futures markets’ wild swings. Steers weighing 500-600 lbs. were trading between $300-350, some fly weights approached $400. The calf and yearling markets set many new record prices last week. When the market gets this high, we get a sense of euphoria, but we all know there could be a wreck ahead. It seems like there always is.
I ran across this thought in the Ag Center’s Cattle Report, which I think says a lot: “Each of us participating in the marketplace has fragments of knowledge that guide us to an incomplete view of what is going on. The movement of prices affects our disposition towards the market. From the limited knowledge we acquire, we make decisions about our objectives in the marketplace. Some of these decisions can include how many cattle we want to buy, what price we are willing to offer, and when we want to enter the marketplace. Decisions on the sell side are just as elaborate and complex. No one operates with all the facts because they are unknowable. We don’t even know we don’t know of some of the facts affecting prices.
“Our decisions are not always logical or even analytically acquired, and as we deploy our plans in dimly lit corridors, obstacles will occur to frustrate our best laid plans. Before you know it, we are operating on the fly and changes must be made instantaneously. Because our knowledge is only partial and because others may have more and different information, chaos is often the player in the marketplace.
“Into this arena steps the government and its proxy—the Packers and Stockyards Division of USDA. This group is charged with assuring all trading complies with the rules and regulations and that no unfair business practices exist. They define an unfair or non-competitive action as one that causes harm to either a market participant or the market price. Putting this judgement in the hands of a government bureaucrat is always dangerous but the recent addition of another charge of intent is a game stopper. According to a newly proposed rule, an action now needs no proof of unfairness to someone or some price, but only the intent on the part of the participant.
“No one ever envisioned a marketplace in which each producer received the same price for the same animal. The reasons why this is impossible, and undesirable could easily fill a book and the new rule is a frontal assault on capitalism. The complaints of participants believing they are not achieving the best price are what makes a market work. Each participant is striving for the best pricing in a competitive marketplace. If everyone received the same price, there would be no market and no participant reaching for the best price.”
This hot weather can be a dangerous situation for heavy fed cattle. Remember those heat bombs in Kansas last summer when cattle feeders realized a significant die-off on 1,500-lb. steers? The West is in need of rain again, pastures are starting to dry off, so let’s start praying for summer rains. — PETE CROW
