winter 2008 piedmontese - Piedmontese Association of the United ...

COW/CALF INSIDER
PIEDMONTESE | PROFILE
Mixed Cattle Market Signals
and Lots of Noise
Derrell S. Peel, OSU Livestock Marketing Specialist
Don’t Waste Time Trying To
Analyze Or Anticipate Weekly
Volatility That Cannot Be
Explained
It seems that the more you assess current market
fundamentals the more you see a confusing set of signals
that appear to be inconsistent in a number of respects.
Moreover, regardless of your reading of the fundamentals,
Jerry short run & Rhonda volatility Chapman
in cattle prices suggests that the
fundamentals have nothing to do with prices anyway…
or so it appears.
Cattle markets generally appear to be caught up in a
wave of uncertainty and hesitancy, largely rooted in the
weak macroeconomic situation, and, additionally, many
market players are operating hand to mouth with the
result that markets are exhibiting week-to-week volatility
or noise that simply cannot be explained or anticipated.
Eventually the fundamentals will reassert themselves in
the market but there is not much hope of that happening
until after the New Year.
Within the fundamentals there are several seemingly
inconsistent signals in the market fundamentals. Boxed
beef prices dropped sharply late in the week after a sizable
rally the last month. The boxed beef rally was likely
based on seasonal demand for middle meats going
into the holiday period, which appears to be over now
and retailers are back to buying hand to mouth once
again. The boxed beef rally seemed inconsistent with
the concurrent weakness in pork and poultry product
prices. What’s worse, fed cattle prices weakened at
the same time that boxed beef prices were improving.
This apparent inconsistency was due to the fact the
weakening by-product values took about $3/cwt. off
of fed cattle prices and more than offset any strength
coming from higher boxed beef prices. Feeder
prices have continued to weaken despite lower corn
prices, another apparent inconsistency. Feedlots have
continued to lose enormous amounts of money and that
is the overriding factor in weak feeder cattle demand.
Live and Feeder cattle futures continue to unravel and
appear to be disconnected with most everything at
this time.
There are several important points for producers in
all of this. First, don’t waste time trying to analyze or
anticipate weekly volatility that cannot be explained.
Maintaining flexibility in buying and selling and trying
to average over several weeks can help reduce the
volatility. Secondly, markets seem to be sluggish in
correcting mixed fundamentals as a result of being
caught up in the emotional turmoil of markets, but the
corrections will occur. Finally, market fundamentals
are still important and will provide the foundation for
markets into 2009. However, there will continue to be
lots of noise in markets for the foreseeable future.
24 PIEDMONTESE | PROFILE WINTER 2008