Jim Robb Looks Back At Volatility In Cattle Markets

A market that went hard down, then turned around and went strongly up. We’re talking about the feeder cattle futures market from the Chicago Mercantile Exchange at the end of 2014. Livestock Marketing Information Center Executive Director Jim Robb said going into mid-December the feeder cattle market prices were probably a little inflated from the fundamentals.

“We had estimated break-evens for feedyards very high, up to $190 per hundred weight in our estimates,” Robb said. “And we flipped that over to the futures markets side, we often talk about, industry people, talk about the crush and on the futures side that difference between fed cattle prices and feeder cattle prices was even more exacerbated, so the futures market really did unwind. “

The month of December was very volatile. The CME had several consecutive limit down trading days. As a result the CME Group expanded the daily price limits from $3 a hundred weight to $4.50 per hundred weight. Robb said that spilled over negatively into the fed cattle market as traders tried to exit their positions quickly and the feeder cattle contracts spilled over negatively to the fed cattle contracts.

“So we had a very volatile month of December, but now we are sort of back almost back to where we started that whole situation at, both on futures market and the cash market,” Robb said. “An unusual situation, one that we do have over reactions in the market, especially when we can trigger it at a time of year where we have some real thin trade going on. I think that was really the situation for those couple of weeks in December.”

Will the volatility that we saw at the end of 2014 return in the New Year of 2015? Robb said he does not think we will limit down movement because the CME Group did change the trading range to $4.50 a hundred weight, which he said is more in line with today’s feeder market compared to five or ten years ago. Because the market has been at very high levels, he said there is still potential for volatility because of the nature of the markets and all of the uncertainty surrounding the market.