Greed and fear, market analysts like to say, are what drives a market. The cattle market over the past century would probably lend support to such a theory. Each time the cycle turns-for better or worse-human emotion seems to drive the market much further in one direction than should be expected. Such is the case over the past five years.

Overly optimistic buyers of feeder cattle and calves have helped drive prices at least 15 percent higher over the past nine months. Prices for 400 to 500 pound steers in Drovers' 50-market auction summary averaged $103.48 per hundredweight during February, and yearling steers averaged $86.99 per hundredweight. While those prices represent some much needed profitability for calf and yearling producers, feedyard margins are likely to be negative unless fed cattle prices move significantly higher over the next few months.

Declining numbers of cattle, and the news that consumer beef demand showed an increase last year for the first time in two decades, are two factors influencing producer optimism. The U.S. Department of Agriculture reported a modest decline in the nation's cattle inventory on Jan. 1, recording a total of 98.0 million head. The decline was only about 0.5 million head from the previous year, but down 5.5 million head from the cycle peak in 1996. Feeder cattle prices are higher due to the inventory of steer calves weighing under 500 pounds that totaled 16.8 million head, down 3 percent from the previous year and 1.5 million head (8 percent) from the 1996 cycle peak.

So how do today's prices compare with peak cycle numbers in 1996? The lowest prices for feeder cattle were recorded in April 1996, with steer calves 400 to 500 pounds at $54.40 per hundredweight in the Drovers' auction summary. Yearling steers 600 to 700 pounds sold that month for $50.03. Compared with February 2000, prices for steer calves are 90 percent higher while prices for yearlings are 74 percent higher. The point here is that an 8 percent decline in the number of feeder cattle should not drive a 90 percent increase in prices. Emotion carried prices far too low in 1996, and emotion is carrying prices higher than is justified or sustainable today. (Retail prices for beef, as measured by USDA, was $2.79 per pound in April 1996. The December 1999 average was $3.07 per pound, a nine percent increase.)

Just how bullish are cattlemen? According to an unscientific survey Drovers conducted during the National Cattlemen's Beef Association convention in late January, cow-calf producers expect 2000 to be a very good year. Seventy-seven percent of those we surveyed during the convention said their cow-calf operation was profitable in 1999. And 92 percent believe their cow-calf operation will be profitable during 2000.

Optimism, certainly, is a necessary ingredient for any successful business operator. And with prices at current levels, cow-calf operators have good reason to be optimistic. But given the cyclical trends that continue to impact our industry, cow-calf operators should use this period of prosperity to prepare for the next cyclical price low. That may be two to four years in the future, but the cycle low will come again, and human emotion is likely to play a key role in driving prices lower.