Theater of the Absurd
DR. ANDREW P. GRIFFITH
KNOXVILLE, TENNESSEE
The title of this article is not original. I attribute the title to Allen Jackson, the preacher at World Outreach Church in Murfreesboro, who is not to be confused with Alan Jackson, the country singer. Allen Jackson has commonly used the phrase “theater of the absurd”, which may actually be “theatre of the absurd” for English speaking people across the pond, to discuss spiritual and social issues plaguing our nation and world. However, this same phrase can be used to describe cattle markets today.
Cattle producers have long awaited cattle prices that rival the level experienced in 2014 and 2015 when record prices were set for all classes of cattle. Those record prices appear to have accompanied the current market conditions eight to nine years later. In many ways, cattle producers need higher prices for their output, because input prices have gone above and beyond a point where profitability is possible with $750 per head weanling calf values. However, the futures market has caught the bug associated with the theater of the absurd.
The easiest method to break this down is by looking at the futures market, and discussing how futures traders have caused confusion in the marketplace in the name of making a dollar trading paper. First, it is necessary to state the fundamentals of supply and demand for beef support higher cattle prices, and this is a good thing for industry participants. Second, paper traders are providing a service where producers can lock in prices higher than may actually be experienced at a later date. Third, feeder cattle futures and live cattle futures are trading too high.
Using August feeder cattle futures as the example, the August contract started 2023 near $202 per hundredweight, while actual cash prices were near $180. At the time of this writing, the same August contract was near $242 per hundredweight, which represents an increase of $320 per head value in five months. There have been a few short time periods when traders took a breather and the market declined, but the trend has been increasing prices. These types of values are pushing 800 pound steers near $2,000 per head if actually realized while live cattle futures prices are valuing finished cattle a little above $2,500 in January, which is the time period cattle placed in August will likely come off feed. The ability to put on 600 pounds of gain in the feedlot for less than $500 does not seem to pencil.
If livestock producers want to trade dollars back and forth then that is fine, but what is the consumer going to say and do? Assuming the packer purchases finished cattle for $2,500 or $2,600 per head and adds in their cost, what level must they sell beef for to be profitable? How high will this push retail beef prices? Will consumers continue to purchase at these new record level retail beef prices? The answer is not known, but what is known is there will be some people making some money and some people losing some money in this environment.
It is clear there are people trying out for a role in the theater of the absurd, and many of them have already been cast in the epic thriller titled “To the Cattle Futures and Beyond,” its sequel “The Ghost of Futures Past”, and last but not least “Back to the Futures.” This is not meant to be cynical or to say cattle prices should not be strong. What is meant by this is that our society tends to stretch things extremely far in one direction and there tends to be an equal and opposite reaction at some point. If the market is stretched too thin the next several months then cattle industry participants can expect similar price action a couple of years down the road as occurred in 2016 and 2017 when cattle prices collapsed. ∆
DR. ANDREW P. GRIFFITH: University of Tennessee