Not to ruin your Friday, but the ongoing implosion of summer live cattle futures seems to be predicting pretty much the end of civilization as we know it. As I write, the June contract has slipped under 114 for the first time since May of 2012. Apparently, the board's terrorizing horsemen somehow anticipate feedlot sales collapsing to $112-113 by late June.
If these panic mongers are fully justified, it will mean that the judgment seat of supply and demand requires retribution of $27 per cwt or more (i.e., from the spring high to the summer low), nearly three times the long-term average seasonal swing.
The market gods are mad indeed.
They said it's never wise to fight city hall. Nevertheless, I think this new market mess says more about the broken status of the futures market than it does regarding extraordinary bearish shifts in fundamentals over the next several quarters.
Yes, beef supplies will no doubt seasonally expand from now through midsummer. But I don't know an analyst worth his/her salt who expects commercial tonnage much over 2.1 billion pounds. While that's 4%-5% greater than the early summer of 2015, it stands to be only fractionally more than producers put on the plate last month (when the 5-area fed steer averaged $136.71).
In June 2015, the 5-area average totaled $151.25. To be sure, given the potential for more production this summer (the per capita supply of poultry is also expected to grow a bit), it seems realistic to assume 2016 should fall short of this mark. Additionally, beef demand has been lagging behind the prior year since the third quarter of 2015. For example, fed prices in March trailed 2015 by as much as 16%.
Yet if we assume a similar pattern in June, the early summer cash average could be expected to average close to $127. By all means, feel free to trim your price projection by $2-$4 based upon expanded production.
But by $14-$15? Cut me a break.