On March 13, a rumor involving foot and mouth disease hit the cattle market sending prices down the limit for a period of time. We now know that a sale barn in Holton Kansas identified five animals that were suspicious for the potentially devastating disease and that tests sent to the USDA animal disease laboratory in Plum Island, New York were negative. Our sources indicate the sores were the result of these animals eating Timothy grass, which can cause sores on the mouths of cattle.

This event began a change of trend in the futures market that has yet to be broken. Oddly enough prior to March 13, the market appeared to be optimistic about higher prices to come based on excellent demand and shrinking supplies. Since the 13th, a $7.00 break in the June futures contract and a $4.00 break in the cash market has resulted in more questions than answers (as of print time, this weeks cash has yet to be determined).

We believe that despite what is being reasoned as the cause, the real culprit is fund selling taking advantage of a fundamentally challenged market. Russia, in response to U.S. steel tariffs, drops poultry imports from the U.S. How negative that really is depends on how long the Russians delay future poultry imports and how the U.S. poultry industry responds to this change in demand. Analysts reason that the increased poultry in U.S. meat cases will result in a shift in demand from beef (and pork) to poultry. We aren't sure the American public is ready to trade beef for chicken legs just yet. Fundamentals are challenged also from McDonalds wanting to test market foreign beef. McDonalds is pretty good at waving the American flag but this feels like a "sell out" of the American beef producer to us. Wasn't it McDonalds that told producers at the height of the BSE scare that they wanted affidavits signed stating that they never fed their cattle mammalian tissues (meat and bone meal)? Is McDonalds going to require the same from overseas producers? The reality is McDonalds is simply trying to shave a few cents off the cost of their burgers and it is becoming obvious that with 30,000 stores worldwide, they don't care who gets hurt along the way.

This market is a mess to say the least. Feedyard inventories are swelling with cattle brought in because of drought conditions. Attitudes and profits are poor. Yet we do not sense that inventories are burdensome and we do not see demand decreasing. What we do see is a market that is being taken advantage of. In other words, the players that are short the cattle market will stay short and increase their shorts until the market runs out of people who will buy it. At the same time, the cash market is firm - granted it could be better and should be but the $7.00 drop in the futures market is far more than the $4.00 drop in the cash market. In our opinion, this break in the cash market (and the futures) was unwarranted and has cost producers millions at a time when a recovery was in process.

We hope producers have taken our previous advice of buying price insurance in the form of put options. Those that did understand how it can help protect the equity they have spent years accumulating. We believe that it is imperative to have price insurance in place during these volatile and questionable times. Our recommendations remain the same - continue to buy put options on all cattle being fed and all feeder cattle on pasture. We also recommend buying corn call options for the next six months feed needs. ©

Schwieterman, Inc. is a Registered Commodity Trading Advisor in Garden City, Kansas. The information herein is based on data obtained from recognized statistical sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to the accuracy or completeness. Past results are not necessarily indicative of future results. The risk of loss in trading commodity futures contracts can be substantial. You should therefore consider whether such trading is suitable for you in light of your financial condition. You may visit their web site at www.upthelimit.com.