It's Cattle-on-Feed report week

This is that week that rolls around every month, where the U.S. Department of Agriculture (USDA) issues its monthly Cattle-on-Feed report. It is avariciously devoured by the cattle traders at the Chicago Mercantile Exchange and the cattle trade media like it was the inspired Holy Grail, coming down from on high.

In truth, it is far short of that. In fact, it is not an actual count of the cattle out standing in feedlots. It is a statistical simulation USDA statisticians extrapolate from their computer models--an estimate of how many head might be on feed. It falls in the category of "your guess is as good as mine." Frequently, months after the damage is already done, USDA issues a correction based on how many cattle were actually slaughtered, and therefore actually on feed, as opposed to their flawed estimates

This would all be harmless, innocent fun if everyone looked at the guesses, had a good laugh, and let it pass out into eternity. Unfortunately, the Merc traders take it very seriously and trade contracts on the basis of the figures, no matter how wacky they are. This can be devastating to the cash cattle market, and extremely costly to individual cattlemen.

Futures trading in cattle contracts badly distorts the cash market, even without the phony USDA numbers it uses to lend itself legitimacy. There are only a handful of major buyers and sellers in cattle contracts on the Merc, representing the nation's very largest meat packers and cattle feeders. They can--and do--manipulate the market at will by buying and selling futures contracts. Ordinary ranchers and smaller cattle feeders cannot begin to afford to compete with the big boys in driving the market on the Merc, but frequently suffer the consequences.

Futures traders themselves work on a straight commission basis. They get paid every time a contract is purchased or sold. They trade on the volatility, and don't care whether the market goes up or down. The worst thing for them is a stable market, with very little day-to-day change. They exacerbate swings in the market, to cause more trading, and of course, generate commissions for themselves.

The prospect of this Friday's Cattle-on-Feed report mostly draws the "oh oh, here we go again" response in actual cattlemen, but is eagerly anticipated and salivated for, by the Merc traders, big feeders and big packers.