What is Causing Downward Volatility in the Cattle Market?

Despite a robust demand for US beef and a constrained cattle supply resulting from persistent domestic drought conditions, cattle prices have surged. However recent external influences have introduced unpredictability into the market. According to R-CALF, United Stock Growers of America, CEO Bill Bullard.

“We’ve got the packers that have shortened kill weeks and that has backed up cattle causing cattle to gain extra weight, the extra weight is adding a ton. So now the packers are getting more tons of beef with fewer cattle purchased and that has reduced demand for US cattle. We've also seen an increase in imports and the imports have the same effect. Because the imports are a direct substitute for domestic beef. They help to reduce the demand for live cattle.”

This downward volatility is causing the decrease and collapse in cattle prices.

“So you have to have a vibrant cash market that can be a true price discovery market in order for a futures price scheme to work. That's because the futures market is informed by the cash market it takes the accurate cash price, and then it adds to that expectations for the future to arrive at a future value.”

Bullard points out that the latest data shows that the cash cattle market accounted for less than 18% of the domestic cattle market. The cash market is not robust enough to establish a competitive price and until it is fixed, he says the entire market structure will continue to be broken.