Market Experiencing More Price Swings

By Tod Kalous, Cattle-Fax

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Click here for graphic of “Week-to-Week Increases in Fed Cattle Prices”

For the week ending Aug. 11, the average Cattle-Fax fed cattle price was $85.56/cwt, an increase of $4.97/cwt. over the previous week.  Historically, this is one of the largest week-to-week changes in price in the past 26 years.  Specifically, the increase in price from the week ending Aug. 4  to Aug. 11 ranks as the fourth largest since 1980.

In the 1980s, there were only 20 weeks in which the fed price increased by more than $2/cwt. from one week to the next.  In the 1990s, there were 29 weeks in which the fed price increased by more than $2/cwt.  Since 2000, there have been 51 weeks in which the fed price increased by more than $2/cwt.

Taking into account the largest week-to-week decreases, there were just nine weekly price changes greater than $3/cwt. in either direction in the 1980s, 14 in the 1990s and 44 since 2000.  Even more dramatically, 40 of the 44 weekly changes of $3 or more since 2000 have occurred just since 2003.

Since 1980, less than 1 percent of the weekly changes in the fed price have been as large as the week of Aug. 11.  If this data gives us an indication of things to come, it seems safe to say that forecasting the short-term fed cattle market will continue to be a “challenge.”  Building and executing a sound risk management program in this environment is extremely difficult and requires a strong line of credit due to the increasing magnitude in price swings.  As the data above shows, this has been a “new market” in the past four years compared to the previous 22, and there is nothing to suggest this trend can’t continue.