“We're the tail on the dog.” That's how Scott Keeling, owner and manager of Keeling Cattle Feeders at Hereford, TX, describes the effect of the world's financial gyrations on cattle feeders.
In the aftermath of the collapse of financial markets this fall, an interesting phenomenon emerged — the Dow Jones was tugging the leash of the commodities markets, with cattle and other futures markets mirroring the Dow move for move. The uncertainty that resulted was felt in the cash market for fed cattle, with cattle feeders seeing a $10/cwt. drop in cash prices by early November.
And that, Keeling says, has been the main fallout for cattle feeders from the world's financial situation. “It's mainly affecting us in the market. I don't think we've seen any tighter money yet.” That, he says, may yet come.
Obtaining feedyard financing in the near term may be more difficult because the industry has lost its favorable position in the deferred futures contracts. The borrowing basis takes its cue from the deferred futures, and the loss in equity that cattle feeders saw through October and into early November may be a factor.
However, he says local and regional banks in his area are strong. “They're as solid as they've ever been.” If tighter credit should become an issue for cattle feeders, the larger national and multi-national banks will likely lead the move, as they were the institutions at the heart of the financial crisis.
The market effect is being seen throughout the chain, he says. While inputs such as feed and fuel are cheaper, the freefall in fed-cattle prices hasn't improved breakevens. “The way it's been in this freefall, we're just being more cautious in what we're doing market-wise,” which is affecting feeder-cattle purchases. “What looked cheap last Monday might be high today.”
Yet, Keeling is optimistic that things will stabilize and perhaps improve. As of early November, it was impossible to anticipate the market because so many outside factors were jerking its chain. He says if the market can hit a stretch where it doesn't fluctuate quite so much, that will provide the stability everyone needs to catch their breath.
“Not that we'll go back to $99 or $100. I don't know that. But I think we can justify being back in the mid $90s,” he says.