Green grass leads to aggressive feeder cattle buys

Ample, and sometimes too ample, moisture in most areas has resulted in abundant green grass. Cattlemen love green grass, and can't resist finding cattle to turn out and graze on it.

That explains the recent high prices for feeder cattle. Most calculations of feed cost, interest, veterinary expense, and transportation show that feeder cattle purchased at current price levels probably won't break even at expected fall price levels, when it comes time to liquidate the summer grazing stock.

Green grass, though, is a strong, powerful lure and feeder cattle are being bid up like hotcakes, so the pretty pastures will be full. It's still possible that a better-than-expected fall market will bail them out, or that the plentiful moisture will continue on into the summer and they'll come off grass heavier than projected.

Cattle are sold by the pound, so gains count. Nonetheless, most analysts agree that what former Fed Chairman Alan Greenspan called "irrational exuberance" has gripped the feeder cattle market. The greater likelihood is that come fall, there will be some broke, disappointed sellers. Hedges with feeder cattle futures, where possible, and selling them early on the summer video sales offer the best protection.

Almost without exception, the best feeder cattle prices of the fall are obtained on the summer video sales, where the cattle are sold for a down payment for future delivery. If the fall market drops deep enough, buyers may even walk away from their downpayment and not take the cattle. But if that happens, the seller has a little extra change in his jeans to cushion his losses from the projected fall cattle market.

Next September is an eternity in the cattle business, but, as the bible says "when the secrets of all hearts shall become known," and only then will we really know the outcome of today's aggressive bets on feeder cattle.