Cattle markets have displayed a noticeable lack of direction lately, marked by a weak or stagnant undertone despite generally strong fundamentals. Much of this tone is due to external factors and seems more the result of uncertainty about possible negative outcomes or uncertainty about the impact of negative outcomes than to the direct impact of decidedly negative situations.
Not all the factors are external. The beef industry has had plenty of negative news in the past month with concerns over lean finely textured beef (LFTB) and the fourth case of Bovine Spongiform Encephalopathy (BSE). The worst of the direct impacts of LFTB is past but lingering effects will likely impact markets for several more weeks. The beef trimmings market, where prices briefly dropped by half, has recovered much of the lost value. On the other hand, the BSE case had almost no impact on cash markets with the negative impacts confined largely to rumor-based futures trading ahead of the official USDA announcement of the case. Most of the drop in Live and Feeder futures was recovered within a few days. Though U.S. beef exports have been largely unaffected, the situation created a breath-holding situation that has hampered markets the past two weeks.
The U.S. and global macroeconomic situation presents a bigger and growing cloud of uncertainty over cattle and beef markets. Though little overtly negative news has emerged regarding the U.S. macroeconomic situation, lackluster performance such as the recent jobs data perpetuate uncertainty about the pace of growth in the economy. The persistent threat of widespread fallout due to financial collapse in several European countries was increased by recent elections in France and Greece. Concern about economic problems in Europe leads to jitters in the U.S. stock market and financial industries that not only cloud overall economic performance but lead to more direct impacts, such as additional volatility in agricultural futures markets.
Significantly higher prices have increased the capital requirements for all participants in the cattle industry. That fact, combined with rising and volatile input prices, has many producers hesitant to act aggressively despite strong cattle market fundamentals. Lenders, with close oversight by bank regulators, are likewise moving cautiously, either hesitant or limited in their ability to provide capital for livestock producers. The resulting equity requirements limit the ability of many producers, especially young producers, to participate in the current market. In the Southern Plains, this financial environment is contributing to a slow recovery from the drought forced reductions in cattle numbers so far in 2012.