>What A Cattle Market! 9 May 2004
Nevil Speer, Western Kentucky University, summarizes the last couple of weeks with this statement:
"Typically, fed trade establishes spring highs between weeks 11 and 15 (mid-March to
mid-April). And within a normal year cash prices seasonally decline towards summer. However,
significant to 2004, traders have been especially friendly during the past several weeks to summer
live cattle futures at the CME; in fact, April 28 marked the first time the June live cattle contract
has ever closed above $80. Friday's close (5/7) marked the contract at $84.38 - equating to a
$6.55 gain in just seven trading days. Current contract price levels indicate seasonal moves into
negative territory will likely not be as sharp as normally expected. Also indicative of the bull
market: April concludes yet another month in which the fed market maintained positive basis.
LMIC data reveals that since March, 2003 only 12 out of 61 weeks have resulted in negative
basis. The market's durability is important given previous expectations for what could have been
an especially difficult spring. The reversal comes from both sides of the pricing equation – demand and supply."
Harlan's comments:
I routinely project a set of planning prices and use these planning prices to study the management implications of those prices. The management implications of current planning prices suggest quite a change in the optimum marketing strategies for 2003 calves.
The change in this weekend's analysis is that ranchers finishing backgrounded calves and/or ranchers with retained ownership from weaning can lock in a positive profit – the first time since Dec 23, 2003. My analysis also suggests that running steers on grass during the summer 2004 projects to be reasonably profitable. One month ago, these three marketing options were projecting a loss. What a difference a couple of weeks has made!
I would encourage any of you finishing cattle or running summer grassers, to seriously consider some form of risk protection on your cattle to ensure this profit potential is maintained. I generally suggest spending $1 to $1.50 per cwt for risk management protection. I prefer some form of a price floor with the top left open in case this market continues to advance. Price risk is reasonably high given the international market.
posted by Dr. Harlan Hughes 8:09 PM[edit]
Business strategists, Sheth and Sisodia (2002), argue that all industries adapt similarly
over time in order to become more efficient. Notably, business responds to four primary drivers
which stimulate continuous and surging transition: 1) creation and implementation of industry-
wide standards, 2) need to offset large fixed costs, 3) increased government intervention, and 4)
industry consolidation. Consolidation primarily occurs as a result of shifts in any of the first three
items listed. Certainly, we're seeing that in agriculture. Much media attention is focused upon
consolidation and growth beyond the farm gate. However, data indicates that important changes
are taking place in production agriculture. And despite substantial transition in recent years, that
transformation is likely to accelerate even further in coming years. In so doing, "upstream"
supply potential becomes increasingly able to facilitate "downstream" business needs.
Source: Nevil Speer, Western Kentucky University, Bolwing Green, Ky Monthly Outlook Letter, 9 May 2004.
posted by Dr. Harlan Hughes 7:42 PM[edit]