Government Shutdown Threats Impact Markets

By Jeff Rose

I have many conversations with producers over the course of a week about risk management and what levels they should be pricing their production.

We always talk about supply, for which the USDA provides data. Then we speculate about demand, and it’s just that, speculation about how high prices can go before consumers adjust their buying habits. Lately these have been very upbeat conversations with supply on our side, prices soaring and consumers showing no signs of slowing consumption of beef.

Then the conversation turns to the elephant in the room. The unpredictable future events that will affect our markets: Plant fires, computer hackers, pandemics, wars, and other miscellaneous government malfeasance.

The government shutdown threat seems to have had consequences for markets. Not just cattle markets, which have lost $5.00 to $7.00/cwt during the first week of October, but also what we refer to as outside markets, the Dow Jones, the S&P, NASDAC. All got jostled around a bit by the uncertainty. Markets hate uncertainty.

I am still optimistic about cattle futures, but what has happened in the first few days of October is why we use risk management. While government malfeasance isn’t out of the ordinary or unpredictable in itself, the timing and creativity of it can be. Not to mention how much attention the markets give to it.

Most of the conversations I am having with producers are more optimistic than the past few years. Cattle can still be locked in at a profit and many already have been. A lot of people of course wonder will it rebound.

We are usually pretty conservative and recommend locking in a profit when you can, but if your financial situation is solid enough to allow it, now might be a good time to leave a small portion of your production unpriced. How much risk/government malfeasance can you tolerate?