Historically, seasonal cattle price patterns have been one of the most reliable tendencies in cattle markets. This is particularly true in a stable market environment. However, the market is anything but stable now and that means that normal price seasonality may not mean much this year.
Anticipating cattle markets is always a daunting task and is particularly challenging this year with so many short- and long-run factors affecting the market. Feeder and fed-cattle prices have advanced more than seasonally through the first quarter but still there are indications that markets may be close to a seasonal top or plateau. However, there is much turbulence in the water and the picture is far from clear.
Most recently, a series of global events has introduced additional uncertainty and hesitation into markets in general and have affected cattle markets as well. The continuing unrest in the Middle East and Africa provokes general political uncertainty and adds volatility to oil markets. The Japanese disaster and ongoing nuclear concerns add additional uncertainty to markets.
These factors, which may or may not subside in coming days and weeks, make it particularly difficult to read cattle markets at this time. Though cattle and boxed-beef prices have looked a bit “toppy” recently, it’s unclear if this is normal seasonality or short-term uncertainty causing a brief pause in the recent strong market trends. The combination of global unrest and seasonality may cause cattle markets to plateau but the underlying market strength, driven by supply fundamentals, may limit any seasonal weakness through the middle of the year if the global factors subside.
Potentially adding more uncertainty are the 2011 crop conditions and corn markets, while emerging drought conditions may temper summer feeder cattle demand.
Looking a little longer term, there’s still the question of beef demand and trade. Over the next 12-24 months, these factors will be particularly important in determining cattle market possibilities. There seems little doubt that cattle and beef supply fundamentals will get even tighter over this period, and it will be domestic and international demand factors that determine the operating range for cattle and beef prices.
Longer term yet will be the influence of the internal dynamics of industry supply. The process of herd rebuilding is likely to begin in 2011 but the process will be slow and will take several years. The questions of just how tight supply will get and how long it will last will play out over the next 3-5 years. There’s still a cattle-cycle component to this industry but it may be hard to pick out amidst the myriad of other short- and long-run market factors that will be at work simultaneously.
Finally, there are some very long-run structural changes at work in this industry that will take years to work out. The industry we know today was built on cheap energy and cheap corn and we aren’t likely to have either in the future.
Permanently higher feed prices changes how the industry will produce by putting much more emphasis on forage. Increased competition for ag land use for crop production will likely also lead to regional shifts in the cattle industry over time. These factors will likely change cattle price relationships by cattle class and region.
Against this very complicated backdrop of influences, it’s difficult to develop a clear picture of the current market situation. Some of these factors will either pass or become more clear with time but no doubt other short-run factors will emerge. Supply fundamentals are certainly in the driver’s seat and suggest that downside risk is limited.
Still, it’s hard to forecast summer cattle prices. The seasonal bet is for lower prices, while recent trends could mean higher prices. Or the two could offset and move prices sideways. For the next few weeks, cattle prices will change according to the net effect of seasonal tendencies, underlying short and long term trends and external volatility. It’s a situation that requires constant monitoring.