The cattle markets in the fourth quarter of 2014 and throughout 2015 were psychology driven. The psychology in 2014 took the market higher than it deserved; the psychology in 2015 pounded it lower than the fundamentals would have dictated. The magnitude of the chasm between the highs and the lows seems extremely large as a result and the free-fall the last half of 2015 has everyone asking: how low do we go and when will we find solid footing?
In a psychology-driven market, it isn’t the fundamentals that turn things around, which makes predicting the market difficult at best. Yet, market fundamentals are still the best indicator we have. Those fundamentals told us the market needed to move downward. We had, and have, a ton of pork and poultry on the market and the largest spread between beef and competing meats we have ever seen. Export demand plummeted, in large part due to the strengthening of the U.S. dollar. Throw in drought in Australia and it made sense to see their imports grow. Additionally, economics told feeders to hold cattle longer and make them bigger, which led to a very uncurrent situation. Couple that with record fed cattle losses and you had the perfect storm for psychology to plummet as well.
Yet the fundamentals tell us it isn’t all bad news. Domestic demand continues to be solid. Cattle numbers remain at historically low levels, weights are moderating and placements have been below average for several months. So the question is this: will the fed market respond to the positive dynamics that exist? The highs are in, but that doesn’t mean we have to drop off the cliff either.
Looking ahead, the short term looks like we should have a chance to turn things in a positive direction. From a longer perspective, expansion is underway but the effects should largely be negligible. We may have seen the highs, but there is no need to return to the price levels of a decade ago either.
The opinions of Troy Marshall are not necessarily those of beefmagazine.com and the Penton Agriculture Group.
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