Tonsor On Whether The Cattle Markets Have Hit Their Bottom

As we begin another market week, the cattle market continues to look mighty ugly. Oklahoma National Stockyards, a major trend setting market, had yearling steers and heifers $2 to $6 lower, along with steer and heifer calves $7 to $12 lower. Kansas State University Livestock Market Economist Glynn Tonsor said he has had lots of conversations in recent days with worried cattle producers. Cattlemen want to know if the cattle markets have hit their bottom.

 

 

“My general response of that is, I’m not sure if we’ve found the bottom or not, I’m not smart enough to peg the timing of that,” Tonsor said. “But, I do think markets are like a pendulum.”

 

Tonsor makes the analogy that markets are like an old grandfather clock that goes back and forth. He said economists are always trying to find that magic equilibrium, which never exists at one point in time. Supply and demand are pushing back and forth trying to find it. It begs the question, has the pendulum swung too far in this correction at the moment.

 

“I tend to be one that thinks demand signals aren’t as bad, as they are being portrayed as,” Tonsor said. “That’s not to say, I don’t think there’s global economic concerns. I think there are, but I think they are being magnified more than they should be and that’s weighed on the markets more in the last several weeks, than what we might otherwise anticipate.”

 

So, maybe the cattle markets are close to the bottom in the short term. The U.S. cattle herd and beef supplies are going to grow going forward. In the short term, he said beef supplies are going to grow with heavier cattle are coming out of the system. Over the next couple of years, the U.S. will expand the herd, so tight cattle and beef supplies are eroding. That magnifies the demand story. 

 

“I think the negative signals on demand are being a little over represented, if you like, in the market,” Tonsor said. “That doesn’t mean I outsmarted the market, but I think that pendulum may have swung too far, too bearish, too much, too quick, such that maybe we’re toward the end of that correction period.”

 

A couple of weeks ago, Oklahoma State University Extension Livestock Marketing Specialist Dr. Derrell Peel talked about how greed and fear influence the market and right now fear is definitely this marketplace. Dr. Tonsor agrees with that viewpoint. With his analogy of the pendulum swinging back and forth, Tonsor said we may be at one end of that pendulum swing, but it’s not going to be an abrupt snap back to higher prices immediately. If last week the market reached its low, Tonsor said we would be naive to think the market will go back higher to May prices. He said maybe we will have a little renewal back from these correction points. So, the bottom line is the cattle market is close to the bottom, but it’s hard to determine if the market is truly at its bottom.