Frustrated Cattle Producers Search for Answers to Volatile Markets (VIDEO)

January 30, 2016 05:45 AM

Many of the big issues facing the cattle industry are being pushed to the back seat as producers, feeders and beef buyers search for answers to major volatility in futures markets.

Amid the hats, the boots and anticipation are questions about the future.

Jackie Moore of Joplin Regional Stockyards is an example of one person left searching for answers. “It was just unbelievable how much equity we lost in this industry in a 100 days,” said Moore.

What Moore is referring to is the massive drop in cattle futures the last quarter of the year--falling 16% in just a few months. That’s a drop that hasn't been seen in more than three decades.  Sterling Marketing put just feedyard losses at roughly $4.7 billion in 2015.

“It wasn't the cattle I bought last week that look too high. The cattle I bought 5 minutes ago look too high," Moore said. "That's the environment we're trying to live in and do business in, and it's a struggle. It's a fight. It's an emotional roller coaster, and it’s very, very stressful."

It's that trepidation and volatility that has folks in the industry now asking what's going on.

National Cattlemen’s Beef Association Vice President of Government Affairs Colin Woodall is working on solutions. “There has been a lot of concern about the downward pressure in the markets especially when we've seen limit up and limit down days and they've happened within a matter of minutes of opening," he said. "So the question has been what has caused that?"

Watch the AgDay story here:

The NCBA and others are asking for a closer look at the situation. 

“We're investigating . We've already offered a couple of ideas, and the CME has been very willing to come to the table and work with us. One of the things we've asked for is that they place messaging limits on cattle futures contracts, which means basically putting a limit on the number of times an individual firms can trade. That did not exist before we asked for it,” said Woodall. 

“Messaging is either adding an order, adjusting an order, or deleting an order,” explained Top Third Ag Marketing Analyst Craig Van Dyke.

Cattlemen are hoping to figure out if high-frequency trading is behind the volatile swings, although analysts say there are plenty of external fundamentals applying pressure. 

“Crude oil is down 30 bucks, the stock market is getting similarly very volatile, and you step back and look at a chart and you say, 'Were we looking at a bubble in cattle?' Has anyone addressed that maybe this was a bubble?” Van Dyke suggested.

Don Close of RaboAgriFinance sees several factors contributing to the situation, including oil prices and the changing economic conditions in China. There's a lot of uncertainty that would cause investors to take a flight to quality," he said. "All of those things are a portion of this stew we're working ourselves into right now."

NCBA is asking CME for the audit trail data as part of their investigation into 2015's wild swings. That would let researchers take a closer look at trading behavior and whether fundamentals or uninhibited technology is driving trade.

“As long as we are seeing that in the marketplace, we have producers who aren't going to use these tools because, in some cases, they are just more of a liability than an asset," Woodall said. "That's unfortunate because cattle futures markets are a great risk management tool--as long as they're working correctly."

For Joplin Stockyards' Moore, the future is about focusing on business.

“You've got to be taking care of business every second of everyday. Can’t lay off one second or you're on the wrong side of it. That's the way it works.  It just controls your life more or less," Moore said. "Just thank God they don't trade them at night anymore. I don't spend all night  up anymore." 

What do you think about NCBA's concerns about volatility in the cattle market? Is high-frequency trading to blame for volatility in the cattle markets? Let us know in the comments. 

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Spell Check

NW Iowa farmer
Rolfe, IA
1/30/2016 01:41 PM

  I am wondering when retailers will pass lower prices to the consumer?

Mike S.
Brewster, KS
2/1/2016 08:48 PM

  Why the concern now.. Most others outside the cartel of packer puppets and the NCBA cronies new the problems were headed to the farm and ranch gate. I can't believe they would actually believe corruption could happen... Duh.. The effects of imports and lack of labeling will mount serious losses of equity by "independent producers" not so much for the captive feeder for the packers who sell meat not live cattle.. Go figure


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