Posted on: 6/01/2016
By Gary Lark
We live in a time of “headwinds” for words tend to become popular, moving from an interesting way to describe some event or experience to an overused cliché. I could ramble on about things like “paradigm shifts” until “at the end of the day” it’s all “yada, yada, yada.” We heard about the “tender shoots” of a recovery after the economic turmoil of 08-09 and then have been hearing of headwinds of all sorts since then. It’s my opinion that the strongest headwinds we have been facing come from our blowhard politicians, incessant TV news and the headwinds that are provided by the informed and uninformed on talk radio. It strikes me that we may have too much news and too much unfiltered opinion. It’s hard not to try to micro-manage our ideas about everything.
In years gone by cattle futures trading and the cattle market itself was one dominated by domestic factors and was immune to much of this outside chatter. There is much to say about what changed this and it cannot be ascribed to any one event. As for the futures component itself, the participation of index funds and managed money over the last decade or two brought in drivers that were not specific to cattle fundamentals. The tilt toward electronic trading and the accompanying algorithm driven programs brought in market movement unobserved and not understood by the human participants. Computer trading programs connected to news feeds and other markets react to things in prescribed ways that humans might not. These programs initiate action in response to news and movements that humans might discount. The “old players” observe the market action and struggle to find relevance or meaning.
The cattle market may be showing the “tender shoots” of a major market bottom. It may be that the cattle market under $120.00 has discounted most of the effects of herd expansion. Even if this is true, rallies may be blunted by many and varied “headwinds.” Over the last 100 years, cattle prices seem to move to higher equilibrium levels along with the cattle cycle and macro-economic changes and then trade in a range for extended periods. We may be in for one of those range-bound periods.
Today the market is correcting a short term “over bought” condition. The return to the 100 day moving averages has occurred and spells resistance. Cut-out values were softer on the first post-holiday test. Weekend clearance is reported from so-so to sold-out. Cash trading will likely occur at the earliest tomorrow. There is some talk of lighter kills down the road. There are many “headwinds” to overcome before belief that a sustainable uptrend is even possible.