Sort & Cull

Every small business with a fighting chance knows the critical value of cross-training. From the CEO to the janitor, all employees are required to wear multiple hats, ready at the drop of any one of them to cover bases left unattended thanks to sickness, vacations and the unavoidable element of surprise.

Consider the colorful example of a one-ring circus. The lion tamer knows a thing or two about making cotton candy, clowns easily double as roustabouts or snake charmers, and the human cannonball's tights just happen to fit the knife thrower, the trapeze artist, and the shy accountant who does payroll.

Yet even P.T. Barnum in his most desperate hour knew there were bad fits that always prefigured disaster. Never ask the strongman to spin plates, never use a mime as a barker, and never put the fat lady on the high wire.

I think somebody needs to remind cattle feeders of this latter jewel of wisdom. Given the way feedlot cash is floating miles above June live futures with enormous steer and heifer carcass weights in tow, beef producers could be cruising for a bigger crash than the Wallendas.

Spot June took the point in the live cattle pit Friday morning more than $10 below the cash market, almost double the average spring discount. Forget about not looking down, somebody throw me some oxygen and a damn parachute.

At the same time, fed carcasses are averaging nearly 30 pounds greater than 2014 and 40-45 pounds heavier than the 5-year average. No wonder the rope is sagging like a piece of soggy pasta.

There can be little doubt extreme weights and board discounts are tied at the hip. On one hand, historically tight fed supplies have encouraged and allowed feedlot managers to hold cattle longer at the bunk in hopes of scoring higher prices. In the past, the surface of such behemoth carcasses would have prompted packers to apply stinging discounts from week to week. But such discounting can only be enforced when a "lighter" norm can be identified in the general slaughter mix.

In short, cattle buyers have simply not seen enough ready inventory so far in 2015 to be all that choosy (thereby green lighting the production of bigger and bigger cattle).

On the other hand, the ugly reality of towering breakevens and unrelenting red ink has motivated feedlot managers to put on more days and simply make cattle heavier.

My guess is that the deepening hole dug by CME bears is essentially maintained by knowledge of seasonal production (i.e., cattle slaughter typically increased from early spring through midsummer. Furthermore, June skeptics seem to be patiently betting that feedlot foot-dragging can't go on forever, that marketing will soon have to accelerate as waves of fed calves start to hit the finish line.

And when those waves do hit they'll be relatively huge thanks to the bloated state of carcass weights established through the late winter and spring.

On the other hand, if our hefty aerialist proves to be extremely skillful with umbrella and balancing pole, dancing back and forth with steady/firm prices over the next month or so, the June board may be forced to explode higher. But for this circus act to shine, domestic and foreign beef demand will have to suddenly demonstrate an amazing and long-missing degree of strength.

For more from John see www.feelofthemarket.com

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(AG)

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