The Market's Fine Print

I think it was Tennyson (and Wikipedia agrees) who once waxed "In the spring a young man's fancy lightly turns to thoughts of love." How true, Lord Alfred, how true.

Granted, the used car dealer might find it necessary to give the odometer quite the reverse spin before pushing me on the lot. Yet I remain frisky enough to at least sniff-out the sexy scent of spring when she first sashays down the seasonal aisle.

Greening grass, budding lilacs, flowering fruit trees, whirling corn planters, new born calves, frolicking heifers, sleek bulls snorting at the gate ... yes, love is definitely in the air.

But as every would-be Romeo and Juliet knows, romance tends to be more fun and predictable in the early stages of the balcony scene than in the final act. Sometimes even blatant signs prove extremely difficult to interpret.

Years ago, Woody Allen starred in a movie called "Play It Again, Sam" that contains one scene I'll never forget. Recently divorced, Allen's character is awkwardly trying to get back into the dating game. When his friends set him up with an attractive and thoroughly liberated woman, he displays the kind of nervousness that has made the scruff and skinny comedian famous.

Through dinner, his new friend becomes increasingly flirtatious, moving from coy winking to suggestive lip biting to aggressive knee rubbing. When they return to her apartment, she slips into something more comfortable and soon admits to be struggling with nymphomania. The naughty girl then launches a prolonged monologue of her sexual likes and adventures, all the while draping her sensuous body around Allen's eager but fearful frame.

Finally, concluding that green lights just don't get any greener, that both home and visiting teams had emptied the bench to wave him home, Woody grabs her with amorous and lustful intent. Talk about a big mistake.

Moments later, he finds himself kicked out of the screaming woman's lair, half scared that rape charges are now pending. The flustered and confused Lothario looks into the camera and says: "How did I misread those signs?"

As cattle ranchers prepare for their late spring chore of turnout, I've caught myself thinking more and more about this funny scene. In many ways, it's classic Woody Allen shtick, the piling on of ridiculous expectations reversed at the last minute by the failure of exactly what once seemed a no-brainer. Maybe that formula reflects my anxiety over herd expansion in 2015.

Let's start with ridiculous expectations, mine that is. To be sure, I'm not alone in anticipating substantial herd growth this year. But there's a big difference between disciplined students of cyclical cattle population and expansionary zealots. Currently, I find myself in the latter category.

More specifically, while many cattle accountants and number-crunchers feel safe in predicting a January 1, 2016, cattle census 1.75-2 million head greater than the previous year, I don't think such a growth rate will begin to catch the forward march. Given the spring and love I currently see busting out all over, next year's bump in herd size is likely to be closer to 2.5 million, the largest year-to-year explosion since 1981.

Beef herd expansion, how do I love thee? Let me count the ways: 1) Evidence of smaller-than-expected cow slaughter; 2) Evidence of smaller-than-expected heifer slaughter; 3) Smaller-than-expected feedlot placement through the first third of 2015 (even if Friday's Cattle on Feed report turned out to be surprisingly bearish; 4) Outstanding profit potential for cow/calf operators (either looking at spot cash or deferred feeder futures); 5) Lower feed costs, both in terms of corn and hay; 6) Generally positive grazing prospects across the country at least through the first half of the summer.

I'll concede that female slaughter could easily track closer to 2014 in the second half of the year. But the aggressive cutbacks we've seen so far in 2015 most probably stems from more expansion activity than formerly recognized. The undeniable reality of the fourth reason listed above lends a great deal of confidence in this regard. Per cow profits in 2014 ranged from $500-$550, and black ink could easily jump over $600 this year.

The money-printing monster that cow/calf production has become must been seen in contrast with the serious equity losses tied to cattle feeding and stocker operations. Those involved in the former are especially losing their shirts. Simply put, the still dazzling math of breeding cows and selling calves pretty much makes herd expansion the only worthwhile game in town.

Like Woody's luckless character, I could be misreading the signs. Who knows? We could wake up on Memorial Day to the last rain of 2015. Yet right now it's the season of love. Until proven otherwise, I'm assuming the cattle orgy ahead will be worthy of the Romans.

(CZ)

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