STURGIS, S.D. – Though the stated goal from President Donald Trump was to bring retail beef prices down for U.S. consumers, it’s calf prices that have taken the hardest hit, with some dropping as much as $100/cwt. Meanwhile, cattle futures have collapsed—all of this despite no significant changes in market fundamentals. And boxed beef prices (the indicator of consumer demand) continues to post record highs.
So, what’s the culprit?
Nationally, about 20% of fed cattle are sold through negotiated markets, while the majority (over 60%) are sold through formula contracts, with the remaining percentage in other arrangements.
Computer algorithms execute many of these trades at high speeds based on real-time data analysis. This can lead to faster market movements and increased volatility that is not directly tied to traditional human judgment.
Arlan Suderman at StoneX for the American Ag Network is a daily commentator on KBHB Radio. “You need to remember, somewhere around 90% of some of these commodity markets are traded by computers with no human intervention. When you look at the livestock sector, it’s well over 50%. So, it makes it easier for them to really move the markets.”
He continues, “These computers are owned by the speculative funds as well as others and they put on their trades automatically based on either chart signals or news headlines or social media posts or whatever it may be, depending on how they are programmed.
“You can get a situation where maybe social media posts start triggering some selling, then chart signals start to fall, and that triggers a momentum selling trading algorithm to put in sell orders and it can perpetuate itself. We are seeing this in full display in the cattle markets.”
Still, the bigger picture remains relatively unchanged – tight supplies and strong demand are resulting in strong prices that are expected to continue until one of those starts to change in a material way.
But recent announcements from the Trump administration aren’t helping, says Suderman.
“When the president starts talking every day about how to lower beef prices as a factor in inflation, you start getting nervous if you’re on the other side of that benefiting from those high beef prices.”
In October, the administration announced it would increase the tariff rate quota for beef from Argentina in an attempt to lower U.S. consumer beef prices. In November, Trump said he wants to lower tariffs on Brazilian beef imported into the U.S.
And then there’s Mexico – a trade partner whose borders have been closed by the U.S. due to fears of the New Worldscrewworm, a parasite that if reaches the U.S., will negatively impact the nation’s cattle herd and beef supply. Historically, the U.S. has imported over 1 million head of live cattle from Mexico annually.
“We hear Brazil saying they are only days away from an agreement with U.S. to lower tariffs, which could bring us a flood of beef from Brazil. We keep hearing USDA Secretary Brooke Rollins saying she has no date set for opening the Mexican border, yet she’s in Mexico this week, meeting with President Scheinbaum. And we know from Secretary Rollins that Trump is “highly focused” on reopening the border,” said Suderman.
Speaking with Reuters recently, Suderman said Trump, “needs to take a class in supply and demand. Cattle prices are high because demand is stronger than the supply. If you want to increase the supply of beef long-term, you don’t do it by lowering prices.”
Currently, speculative funds are holding big, long positions in the cattle market. Suderman said the concern over an influx of beef from Brazil and other countries and the possible influx of feeder cattle from Mexico is creating havoc in the trade. Speculators are worried they might get caught on the wrong side of that, said Suderman.
Despite the technical chaos over the last 14 days, industry experts point to solid fundamentals that remain in place. In addition, there are no significant signs of herd-retention. Consumer demand remains high. While the market has lost significant ground in the last 15 days, prices are still at historic highs.
In a recent Cattle Call, produced by Nebraska Rural Radio Association, Brad Kooima of Kooima Kooima & Varilek, urged market participants to stay cautious while awaiting clearer signals on trade and supply.
“I wish they would just give us the news. Tell us that you’re going to take the 50% tariff off of Brazil. Fine. It’s in the market. Everybody… seems to know that that’s going to happen,” Kooima said. “Let’s get it out of the way so that these headline algorithms can deal with it and get it in the thing. As far as the Mexican border is, why not give us a day?”