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A price explosion on the horizon

Aug 04, 2008
By Steve Cornett

           Over at the new cattle discussion site, http://www.agweb.com/DiscussionBoard/forum.asp?FORUM_ID=17 I notice that there is still a lot of concern about the future of cattle prices.
            One of the AgWeb regular commenters, who signs himself as Nuffield is, on the other hand, all bulled up.
            I’m not sure fed prices will hit the goals suggested by winter futures prices, but I’m more bullish than the bears. I recall the time in the 70’s when we were all just about to give up after years of liquidation. At the time, I was helping at Texas Cattle Feeders Association and Jim Gill, who recently retired as head of their market department, talked me into putting out a news release predicting a “price explosion” one day soon.
            That is exactly what happened a very few weeks later. And it’s what has to happen sometime in the next few years if not months.
            The reason is simple: You can’t keep producing a product at a loss. Finally, supply gets low enough to return a profit. When it does, we’ll all hold heifers and that will acerbate the shortage and push prices higher yet. Then, of course, we’ll hold too many too long and start the cycle all over again.
            I know. I know. All the guys smarter than me with real educations and all say the cattle cycle is dead. It may be, but I won’t believe it for a long time. I wish I could. What I think we have, instead, is just a long downsizing of the industry. We will at some point get small enough for the survivors to make money.
            We’re a long way from that in this under a dollar range.
            The problem is how low we have to take supply in this weak economy to get the price reaction. The question is how many cattle will be around to enjoy the good times when they come.
            It seems like more economist types think we’re getting closer. Purdue’s Chris Hurt http://www.purdue.edu/uns/x/2008a/080102HurtEthanol.html
Seems to think we’re closer. His take is that the growth in ethanol demand will slow down and exports will pick up and we’ll get some relieve in feed prices and some increased sales of the stuff we sell overseas.
That would sure be nice. This latest inventory marked yet another year of liquidation. We mustn’t keep killing this factory or we’re going to give away more and more freezer space at the supermarket. As we’ve seen since the 70’s, that space is hard to regain once it’s lost.
 But unless we get some recovery in pasture conditions in crucial areas or some serious relief in grain prices or that big bump in fed cattle prices, I suppose we’ll keep downsizing.
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COMMENTS (5 Comments)

y has cattle prices fell so mush this week
8:43 PM Sep 13th
It costs a lot to raise cattle these days.
5:13 PM Aug 17th

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