October 22, 2003
Fear of Retreating Prices Increases As US Livestock Markets Near Top
A rising fear factor among U.S. livestock producers as prices rally eventually reaches a peak that cannot be tolerated any longer, causing them to do what they can to capture as much of the increase as possible before prices retreat to less profitable or unprofitable levels, market analysts said.
That includes accepting lower prices.
This is what's going on in the fed cattle market this week, feedlot managers and market analysts said. Fear of lower prices in coming weeks and months is causing cattle owners to back away from continually higher asking prices in order to sell as many as they can before prices retreat any further.
Nothing really has changed in the fed cattle markets from last week, managers and analysts said. The industry may have passed its tightest supply numbers last week, and there are a few more up for sale this week, but they are just as underfinished.
As fear takes over their marketing decisions, cattle feeders realize they have too much money invested in the animals to be wishy-washy about the decision to sell them, said Jack Salzsieder, president of K&S Financial & Marketing. This increases the fear factor and encourages a mentality that pushes sales volume over prices.
In addition, the fact that prices are at or near record highs encourages producers to give a little on prices to sell as many animals as they can at a price that is near the peak price, Salzsieder said.
Lower futures prices either trigger the fear factor or add to it, he said. Cattle futures last week turned lower, leading to this week's change in attitude among cattle owners.
Technical talk among traders also can lead to a change in psychology in the cash market, Salzsieder said.
Technical talk can change market perceptions in the cash market, said Doug Berger, retired market analyst and broker. One reason is that many cash traders don't understand technical factors very well, and technical explanations can sound very convincing, even if the technical trader doesn't know what he's talking about.
Very few producers truly understand what drives prices either, Berger said. Their skill is, and always has been, producing the livestock. This makes them susceptible to impressive-sounding talk from a broker or feedlot manager and can change their perception of what a market is doing and why.
"No one can forecast values at this time," Berger said. "And those that do should be ignored immediately. This includes me."
Brent Skaggs, market analyst at Amarillo Brokerage, said he thinks producers expect a market that went up as fast as the cattle market has is liable to go down just as fast. This implies that as a group, producers may be willing to accept a market break when it comes.
Skaggs also referred to the futures market and pointed out the latest declines from the highs. Such declines add uncertainty in the minds of feeders and brokers.
And, in the case of cattle feeders currently, feeders know they'd still be making a good profit if cattle gave up $10.00 or more this week.