As you all know, I am a commodity broker, risk management and marketing consultant servicing cattle producers. You would think that for me, the third Friday of the month would be oh-so exciting, because that is when the monthly Cattle on Feed report is released. You would be dead wrong. I flat-out don’t care about the Cattle on Feed reports, and as 21st century cattlemen, neither should you. Let me explain.

Let’s say that a little bluebird lands on your shoulder every morning and tells you EXACTLY how many cattle there are on feed in the United States. Can you whip out your cell phone and use that information to make money right then and there? Think about it. Would knowing that number really give you any real advantage in the market? The answer is no. Is supply the only factor that determines price? Absolutely not! There are infinite factors that make up the price. The macro factors include supply and demand, but there are micro and sub-micro factors, including every decision made by every person sitting in a sale barn, every person who goes to the grocery store or eats out at a restaurant, and every person who trades futures, and on and on. Oh, and don’t forget market shocks like BSE or huge snowstorms. They have an effect, too.

Let’s break down the Cattle on Feed number a little more. The number reported by the USDA is an imperfect reflection of ACTUAL supply. However, we must all understand that there are really two supplies in any market: the actual supply, and the AVAILABLE supply. What’s the difference? The actual supply is the number of cattle that actually exist. That is what the little bluebird would tell you every morning. The available supply is the number of cattle that are available for sale. If you know anything about the price freeze back in 1973, you know the difference between the two supplies. When President Nixon implemented the price freeze, feedlots slammed the gate and refused to sell. The ACTUAL supply didn’t change, but the AVAILABLE supply went to zero. The price skyrocketed, even though the actual Cattle on Feed numbers hadn’t changed a bit. So much for the little bluebird, huh?

In the same logical vein, are placement numbers an accurate predictor of future prices? NO WAY. Again, placement numbers are an imperfect estimate of just one small component that will eventually contribute to the formation of the price. What about all of the other myriad influences on price that we discussed earlier? Do we really believe that by using that one tiny piece of data, some economist or analyst can reliably predict what the price will be five months from now? Are we really willing to build our business model upon these shaky guesses? Come on, people. It’s time to get real about the markets and consign this silly fortune-telling nonsense to history, where it belongs.

So what is the proper mindset when it comes to cattle marketing? The proper mindset is to focus on the price right now, this very minute, and nothing else. The price yesterday is gone – never to return. We can’t change it, and we can’t execute upon it. The price in the future has yet to occur, so can’t execute upon that either. What about futures and forward contracts, you ask? Those prices are the prices RIGHT NOW for future delivery, not the “price in the future.” As an industry, we have to get that straight.

The price right now is real, and it is the only thing we can execute upon. Therefore, it must be the focus of our marketing process. Ironically, the price right now is the most ignored facet of the market. We spend all of our time and effort looking back in an effort to see ahead – and ignore the only relevant component in the process. Let’s tighten up our marketing skills, and next month, when someone brings up the Cattle on Feed report, just say, “Frankly my friend, I don’t give a . . . “ ©

Disclaimer: Information contained herein is believed to be reliable, but no independent verification has been made and there are no guarantees as to its accuracy or completeness. The risk of loss in trading futures and options can be substantial, and investors should very carefully consider the inherent risks. Visit Ann at www.Barnhardt.biz.