MacroMan points out that Live Cattle Futures have gone parabolic; Daniel Dicker blames speculative derivative traders and a lack of oversight as the cause.

I have no idea what is the underlying driver, but we are now at record prices for Live Cattle Futures — will Beef soon follow?

>

Source: Global Macro Monitor

Category: Commodities, Inflation, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

36 Responses to “Cattle Prices Stampeding”

  1. A major input of beef production is feed the cattle eat. When feed goes up, then beef prices follow.

    Check out animal feed news on Bloomberg:
    http://topics.bloomberg.com/animal-feed/

    The first headline is “Corn Advances to 30-Month High” – check out the graph for corn. Corn is used for feed for many animals. As to why corn has risen, well you have to look at the level of stocks and expected future production. Weather effects production yields, as does the amount of a grain planted (ie, if another grain goes up, farmers will plant more of that and less of something else). Also effecting corn is mandated ethanol production.

    As for weather….summer fires in Russia, huge floods in Pakistan, now Australia – all this has an effect on expected future supply and prices.

    The link you posted to the Street is a political statement and a plug for a book, rather than any kind of analysis of the underlying market fundamentals.

    Perhaps there is also some lingering bias in favor of hard commodities considering the U.S. government’s intent on producing dollars to buy copious amounts of Treasuries….but it is impossible to really prove that this is the case in any meaningful way – should the U.S. dollar decrease in any equity correction, this thought could merit further analysis.

  2. [...] Cattle futures have gone parabolic.  Farmer Brown is not surprised.  (TBP) [...]

  3. philipat says:

    With prices at most US Steak Houses as at present, it shouldn’t really make too much difference? Perhaps though, without any pricing power, except perhaps in Lower Manhattan/Long Island, it might represent more margin compression ahead?

  4. Veneziano says:

    Investors are literally Following The Herd….

    moo.

  5. MayorQuimby says:

    ALL commods are going parabolic (okay, most).

    “I have no idea what is the underlying driver”

    Oh come on. We all know what’s causing this…EXCESS LIQUIDITY.

  6. DeDude says:

    Put a tax on every commodity future trade and make that tax refundable when you take actual delivery of or sell the commodity itself. That way those with a legitimate reason to trade in these things will not be hurt and all the speculator and gamblers will go to other areas where their gambling does not hurt other people and the real economy.

  7. CentralIowaFarmer says:

    We don’t raise cattle any more, but as a youngster my grandfather and father both raised cattle. I just raise corn and beans.

    The supply and demand story is this – cattle producers haven’t been making much money for several years now, and they (cattle farmers) are getting older, and selling their herds. Takes a lot of money to get started in the cattle business (cows, plus land to graze, plus equipment to make hay, plus hired folks to do the work), and the average 25-30 year old isn’t going to 1) plop down 50-250K to get started in a break-even business, and 2) no banker is going to help them out on a break-even business. So the national “herd” of cows is getting smaller each year. These cows that get sold get turned into hamburger, lowering the price of cattle.

    Basically, for 2-3 sound economic reasons, the national cattle herd has been getting smaller. And no one is getting back into the business because you don’t make money, and younger fellas don’t have money. Plus price of corn is too high to make money. Corn has to go down or cattle prices go up to increase the national herd. You can talk spec money all you want, but meat prices will go up.

    Consider the fact that if you want to purchase a bred heifer, that is about 15-18 months after that calf is initially born, then another 9 months gestation. And I (or any other farmer) isn’t going to start that 2-3 year process until I see that I can make a profit. Beef is going to get expensive.

    Pork and chicken have much shorter timeframes; those prices won’t fluctuate so much.

  8. Robespierre says:

    Eat Mor Chikin?

  9. louis says:

    Those damn derivatives again.

    “We are going to change the culture of Wall Street” – Obama

  10. rktbrkr says:

    Uncle Ben’s cash printing machine is just starting to produce “unimaginable” results, first in non-core inflation which will flow thru into measured inflation. This is just the tip on the iceberg Ben is taking us to at ramming speed.

    I heard a former fed analyst on Bloomberg yesterday say that with an interest rate increase of only .28 the Fed balance sheet get wiped out.If that is true the Fed has to unwind their position in a New Yawk minute to avoid big losses. I don’t think they’ll even try. Strange days are upon on and even stranger times lie ahead.

  11. CentralIowaFarmer says:

    If we don’t have perfect weather this summer, we might run out of corn.

    http://drought.unl.edu/dm/monitor.html

    2011 won’t be remembered for floods in the US.

  12. Julia Chestnut says:

    There may be an underlying dynamic. Feed is soaring, and cattle that are out now may be difficult or expensive to finish. But more importantly, I’ve been watching something weird in beef for awhile now. The price has been kept low for reasons that don’t make a lot of sense to me — ranchers have been getting hammered. Some of it is dairy herds being destroyed – but that is low end of the meat universe. Some of it is demand destruction – hard to charge what steak is worth when everyone has switched down to hamburger. But I’ve been watching beef ranchers get squeezed for some time now. If enough of them went out of the business — and let’s face it, it’s not a luxurious lifestyle — we could be about to see a serious crunch between feed going up and enough people leaving the supply chain. It honestly wouldn’t surprise me. If someone is watching and has enough information. . .let’s just say that it might not be entirely speculative, or it might be someone making a very saavy speculative bet.

  13. Julia Chestnut says:

    People I know, by the way, switched to pigs if their operation allowed for that, but mostly to angora goats or similar — that is, if they are still working the land. A lot of land where I’m from is grazing only.

  14. JimRino says:

    Come on Central, there can’t really be a drought.

    Rush told us global warming will make everything Perfect!

  15. JimRino says:

    What are you doing looking at ACTUAL DATA from the GOVERNMENT.

    Don’t you know their in on the Conspiracy?

  16. JimRino says:

    Well at least Pennsylvania’s safe, we have water.
    Oh wait, we’ve just allowed FRACKING to destroy our water supply!

  17. machinehead says:

    First commenter Alaric is right — when cattle feed prices soar, herds get liquidated, then a supply shortage in cattle results. This is a cyclical process — if current high prices continue, some new players will enter the cattle raising business.

    But it should be emphasized that high corn prices are driven by the corrupt policy of subsidizing a net-energy-loss ethanol industry.

    Smash the ethanol barons!

  18. Mike in Nola says:

    Ya think we’ll soon see people camping out in line to buy cattle like they did for condos in Fl and NV?

    Is there any practical way for small fry to put a long term short on these bubbles?

  19. JimRino says:

    Can’t you feed cattle grass?

  20. How are cabbage futures doing? I recall it was very popular during the glory years of the Soviet Union

  21. ashpelham2 says:

    Probably just some short-term hedging and commodity increase because all commodities are increasing. Looks like a nice short if I only had a way to do it. A short, after a little higher rise.

    However, if it’s a long term trend due to dynamics and real underlying business reasons, then it’s another sign of our long-term slide in quality of life in the US. Perhaps we’ve had it too good for too long, and now that the rest of the world has demanded the jobs that we once cornered the market on, we are sliding backward to an equilibrium in quality of life on par with what China, India, civilized Africa, and other developing countries are currently building toward. Gone are the halcyon days of pension plans, steak dinners for Christmas, and a new car every 4 years.

  22. TheUnrepentantGunner says:

    robespierre:

    as soon as I saw the chart I turned around to my colleague and said that exact line…

    I wonder how this will effect downstream the pricing of certain cuts of meat. Let’s say Filet Mignon costs $8 a pound retail and hamburger $3 a pound retail…

    Does this incresase in cattle cost mean that each cut cost is $3 higher, (in which case I am going to eat less meat overall but certainly more filet), or does it mean the cost doubles across the board, at which point it’s hamburger helper (well, ok, just hamburger, as i dont think i’ve eaten the helper in 20 years)…

    Either way, this weather has been absolutely ridiculous in the north east, and somehow when i do grill in the garage it feels distinctly unsafe, even with the door partially open.

  23. skostadinov says:

    I’m no expert on commodities, but won’t high cattle prices induce cattle farmers to sell their steer? And won’t that increase in supply tend to moderate beef prices?

  24. Arequipa01 says:

    I appreciated CentralIowaFarmer’s comments alot- thank you. I am curious to know his/her opinion on the primary driver(s) in current corn pricing.

    Also, in listening to Bloomie today, I just heard a piece on onion prices in Brasil and their significant increase. Like I asserted on Dec. 3, QE2 is in part a tax on the caloric intake of every single human being on the face of the earth.

    OT: Anybody know anything about this operation: http://www.krollbondratings.com/index.php

    They have been running ads on Bloomie and in the last segment of the ad when a woman named Diamond is speaking and begins to make a comparison with other agencies she is abruptly cut off and the screen goes to a generic list of equity activity. I think Kroll should seek a rebate- they paid for a full commercial- are they getting all the time they contracted for?

  25. Julia Chestnut says:

    Jim, you typically do feed cattle grass. Even that has to be supplemented with feed during the winter months. Then grass fed herds are typically “finished” (fattened) in a feed lot on corn and other grain, because it makes them fat a lot faster.

    There is a market for entirely grass-fed beef – but that is not the way most beef cattle are raised in the US.

  26. @Julia Chestnut

    Maybe they should take them out to McDonald’s for a few extra value meals. It would probably cost less and it would fatten ‘em up real quick!

  27. Deflator Mouse says:

    This is one of the inescapable, yet predictable unintended consequences of the ethanol mandate. The world will be poorer for little or no net gain in energy.

    We’ll need to save some ethanol for drinkin’.

  28. Way back in August of last year, I wrote a piece about cattle futures and market journalism. The gist of the matter is that supply and demand metrics are far more stable than are prices, for really any commodity, not just cattle futures.

    http://thecurmudgeonsattic.wordpress.com/2010/08/25/cattle-futures-and-market-journalism/

    Now, if agricultural and other commodities are screaming up (as they have been, just as they did in 2008 just before the crash), and we know that, e.g., 35% more humans weren’t born in the last few months (commodities indexes are up about 35% over the last half-year or so) such that food demand has skyrocketed, and we also know that the corn, oats, etc., crops haven’t all failed, what then might be the answer? Perhaps the value of the money with which they are priced has changed? Something to consider before concluding that price increases and decreases in commodities are the sole result of supply and demand metrics.

  29. JimRino says:

    Thank you Julie.

  30. Julia Chestnut says:

    Any time, Jim. ;) That rural upbringing ought to come in handy somewhere!

  31. MidlifeNocrisis says:

    CentralIowaFarmer:

    I hope you’re right with the weather prediction. 2008, 2009, and 2010 have been terrible down here, especially along the Skunk and Iowa Rivers. We all could use a dry year. $8.00 corn would be nice (sorry cattlemen!)

  32. Analysts say Australian disaster may bring massive crop outputs

    January 20, 2011 Thursday

    Floods to bring record wheat crop;

    Rain that caused billions of dollars of destruction in Australia could propel wheat output in the fourth-largest exporter to a record next harvest and boost irrigated crops after floods swept parched land.

    Heavy rains saturated soils, providing moisture for the next wheat-growing season and raising dam levels for irrigated crops such as cotton, Rabobank Groep NV analysts Wayne Gordon and Tracey Allen said Wednesday.

    Rising wheat and cotton supplies from Australia may help curb global prices that soared last year on concerns that demand may outpace supply. Floods this month followed the country’s wettest July-to-December on record, ending in some areas a decade-long drought and filling dams in the Murray-Darling Basin, which produces more than a third of the nation’s food supply.

    “It’s plausible to see that we could plant and perhaps grow a record wheat crop in the coming year,” Gordon said. Still, that depends on improved production in Western Australia, where drought persists, and “top-up” rains in the east, he said. The grain is mostly planted from April to June….”
    http://www.world-grain.com/news/news%20home/LexisNexisArticle.aspx?articleid=1342823516

  33. btw, if more of all y’all would read some of:

    http://www.foodbusinessnews.net/
    http://www.meatpoultry.com/
    http://www.biofuelsbusiness.com/

    this “Cattle”-story would, hardly, be a surprise..

    Thank Sosland Publishing Co. …

  34. xynz says:

    Midway through 2009, there is a huge increase in volume: it doubles almost overnight. Then there appears to be another significant volume surge that is coincidental with the beginning of the rally. I smell HFTbots.

  35. CentralIowaFarmer says:

    Arequipa01 asked me to comment one what is driving corn prices and I’m happy to share my thoughts.

    Typically, the majority of corn in US is produced in Iowa and Illinois. We trade back and forth each year, it seems, on which state produces more corn. And that is usually determined by the weather. This past year, weather forecasted a bumper crop – plenty of rain. However, in August, we got this warm weather that didn’t cool down overnight. Corn plants can thrive in hot weather, as long as they get a chance to “recover” overnight. This year, they didn’t get a chance to recover, and most corn growers were surprised when we harvested that we weren’t getting as many bushels as we thought we might. My yields, which were 215 bu/acre last year, were 175 bu/acre this year. About a 20% reduction.

    Corn prices started to ramp up as soon as this information started being proven to be true. Most experts didn’t realize this because while the plant looked healthy, the kernel weighed about 10% less. Combine this with the fact that my moisture was 5 points lower than last year, and I’m missing out on selling water weight (which is typical – this year, I’m selling very high quality corn).

    So, in September, the idea switched from “we’ve got way too much corn” to “we are going to run out of corn if we don’t cut demand” and so prices are going to go up until we run some A) ethanol plants or B) livestock owners out of business. ADM and the folks who make corn syrup and other products would be the last of the group to go.

    We’ve had pretty good growing conditions the past few years. Prices at this point reflect decent growing weather. March, April, May and June, if we have dicey weather (hard to plant due to too much rain or stress due to not enough rain), i would say corn prices could double. But likely the govt would get involved by limiting exports or changing ethanol mandate or something.

    If you look at corn/gold ratios, or oil/corn ratios, corn and other food commodities are still very cheap compared to 20-30 years ago. We haven’t suffered a major “drought” in corn belt for over 20 years…But we will suffer one someday, and food commodities will go parabolic.

    Land prices are skyrocketing out here.

  36. [...] noted last week, cattle prices were stampeding. This definitely bears [...]