Speer: Free Market Doing Its Thing
The Market Is Broken: Last summer I received an email that’s stuck with me. The reader shared his concerns about the business. He was essentially telling me, “the market is broken”:
I’m not sure I know the solution, but your columns seem to ignore the reality that there is a problem somewhere in the market. Hell, even the packers in their SEC filings acknowledge the profits in the cattle industry are beyond even their own expectations.”
I responded directly, and subsequently included some of those same comments in a column entitled, Where’s Your Focus?
$95+$95: With that backdrop, let’s review the market action of the past several months. As noted in last week’s column, it’s difficult to find many producers who aren’t (very) bullish on the market. For good reason; last week’s 5-Area Fed Steer Price established the fourth record in just ten weeks. But none of that is new.
Solid gains have been ongoing for several years. Specifically, the fed market has roughly doubled over the span of thirty-five months: surging $95 from the $95 low established in July, 2020. Stated another way, since that low, the market has improved an average of ~$2.75/cwt every month.
2014 Comparison: How does the current run up the mountain compare to 2014? In other words, how long did it take to add on $95 to reach the previous record of $170?
It’s not even close. The market required roughly 10 years and 10 months (going back all the way to February, 2004) to gain $95 and cross the $170 threshold. (see graph).
The market is more responsive than ever. As such, it’s hard to reconcile that reality with one being described as “broken”.
Big Cattle: But facts and emotion don’t always match up. Recall last June the Senate advanced two separate bills, including the Cattle Price Discovery and Transparency Act of 2022. Following that action, Senator Grassley announced his, “…years-long beef with Big Cattle is one step closer to being settled.” The market was going to be fixed by government action. (see Settling the Score with Big Cattle).
The timing of that proposed legislation (and my reader’s email) has always been somewhat perplexing. All that fuss and noise and commotion was happening in the middle the current bull run.
Crisis Peddlers: That brings us to the crisis peddlers. They keep proclaiming something must be done. The market needs government intervention – else prices will never find traction on their own. Therefore, legislators need to:
- Mandate more cash trade;
- Impede beef and cattle imports;
- Reinstate country-of-origin labeling;
- Fix futures markets.
Nothing Has Changed: None of those things occurred. There’s not been any shift in negotiated trade, nor limitation on imports, nor adoption of country-of-origin labeling, nor any changes at the CME. So, IF the market was broken before – but isn’t now - how did it manage to fix itself?
Perhaps it wasn’t really broken in the first place? Rather, the complaint was really, “I don’t like these price levels.” That is, the crisis peddlers seemingly confuse price and functionality; they’re two very different things.
To that end, I received an insightful email just last week from an industry veteran describing the current sentiment across the business: “Today I haven't been made aware of even ONE call of complaint about the unfair market by the advocates of government intervention from any region!”
The Free Market: Similarly, I haven’t received any emails recently proclaiming the “market is broken” or any further complaints that my “columns seem to ignore the reality that there is a problem somewhere in the market.”
High prices make everyone feel better. But what’s even more important is the principle. That is, government didn’t make the difference. Rather, it’s just the free market doing its thing.
Nevil Speer is an independent consultant based in Bowling Green, KY. The views and opinions expressed herein do not reflect, nor are associated with in any manner, any client or business relationship. He can be reached at nevil.speer@turkeytrack.biz.
