The Big Boys at the Chicago Mercantile Exchange, representing the Big 3 meat packers and very biggest traders of cattle futures contracts by the largest feedlot owners, can pretty well corner the market and call the tune on futures pricing--and therefore, cash fed cattle prices, whenever they choose too.
Cattle supplies are very tight right now, due to a big cut in brood cow numbers from drought and high corn prices, and therefore, a smaller calf crop this year than expected. Herd expansion has stalled before the expected peak, and numbers are, in fact, falling. Cattle owners have an advantage, since retail beef demand has stayed high.
When things look to be getting a little too much leverage in the hands of cattle owners, the Big Boys put the hammer down. They did it early this week, trashing live cattle futures Monday, and leading to Nebraska cattle feeders taking a $3 hit in selling cash cattle to the Big 3 packers at $155 instead of last week's $158 or the previous week's $160.
Late today, after the Big Boys at the Merc successfully caused live cattle futures to only tread water at yesterday's greatly shrunken prices, instead of rallying today as they should have--Texas and Kansas feeders took a $2 whack and sold fed cattle at $98, below last week's $101-$102 pricing.
Futures traders only care about generating trading commissions--their sole source of income. They're always glad to cooperate with the Big 3 packers when they need to show cattle owners a thing or two. Driving futures up and down generates commissions, so volatility is a key factor for futures trader's economic health.
This is not always so healthy for cattle owners, as this week's action shows. It's why the egg industry ended futures trading in eggs a few years ago. Cattle owners don't have the clout to end futures trading in cattle, although many would like to do so.
A week like this one gives them ammunition.
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