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RSS By: Steve Cornett, Beef Today

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A bullish bear or bearish bull?

Jun 17, 2008
A respondent to an earlier blog accuses your correspondent  of being too negative the cattle market. Well, it depends on what you mean. I’m not bearish the cattle market. I don’t really disagree with his premise about the near-term rise in cattle prices.
            But longer term, I am a bit bearish on the cattle industry. I suspect we’re a long ways from out of this mess. I don’t know when it will happen, but the market price of cattle finally has to reflect the reality of dollar-plus costs of gain and short numbers in feedlots. Great. But we may still be wading mud when it happens.
            If you happen to be in the commodity trading business, higher prices are fine. Shucks, they're as good as lower prices for you. If you're bulled up, just get long. The problem with it is that cowpeople aren’t going to get much profit out of the higher prices. Not in the short-term, anyhow. What they get is more risk and more capital requirements..
            Here’s a piece from Bloomberg that pretty wells sums up the situation.
            If fed cattle can bust $1, as the board indicates they may, that will be great. But if Cost of Gain is $1 and fed cattle are $1, you know what that means a steer calf is worth, after--after--he’s been held months after weaning.
            I’m not sure everybody can afford to produce calves for a dollar a pound. I’m sure we can’t produce as many of them, if only because we’ll have to move the cows to one side to give the steers grass until they get big enough to finish on 90 or so days’ feed--and that has to come after we’ve also plowed up all our better land to grow crops.
            Eventually, sure, we’ll come out of this with profitable prices for cattle. The question is how many producers will have cattle for sale when it happens. We need the Korean mess fixed. We need the new markets and we need them to come at prices that will let us compete with everybody else bidding for feed grains. Otherwise, this "American niche" of grainfed beef is in jeopardy of being far less lucrative than we'd hoped.
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COMMENTS (6 Comments)

Nuffield
I note last night was a rather large one on the CME for feeder cattle in particular. The train has left the station ... For peaks sake don't be the producer that sells his inventory to the funds only to see the bull market arrive and those profits head to Wall Street. Learn from the booms in the other commodities. Forward contracting in a deficit bullish market is bad for your WEALTH! By all means hedge your cost base because that will continue to rise. Good luck!
5:49 PM Jun 20th
 
Pete
Some of your argument mkes sene but the hole in it is getting your hands on the grain at some time in the future.Those grain trains from the north just might start showing up empty or part full in the very near future.Another major buyers starting to eemmmmerge in the meat markets is the Haalliel processors.Every time I go to market there is more buyers and they like unfinnished bullocks and steers. 70 to 1200 and big range bulls for $.85 at close to 1900 pounds.For religous reasons these folks have to eat meat and not all of it needs to be goats.
8:28 PM Jun 18th
 

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