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Banana peels and land mines

00:00AM Sep 22, 2008

Steve Cornett

If last week's market turmoil didn't get your attention you must be very rich, very poor or very, very busy.

The big news centered on the financial markets, with Texas-hedged investment banks sinking like one of those Galveston yachts, and sucking politics, insurers and worldwide fiscal policies into their vortex.

The poor old cattle market was tossed like a bit of flotsam on a macroeconomic storm surge, but between the hedge funds scrambling for safety and fears about beef demand's fate in a weak economy, there was plenty for cowboys to think about besides their stock portfolios.

Caught midweek at a Blue Grass festival in Missouri and forced to dig up words to describe the situation, NARMS president and Beef Today contributor Bob Price said it was "like banana peels in a mine field.” Then, remembering he had used that in some other moment of terror, he said, "only this time, I'm adding--with missiles overhead.”

Which is to say that while the cows lowed peacefully last week, and ranchers hummed their way through the early fall chores, commodity brokers were pedaling as hard as they could.

What was happening, said Paul Nelson at, was that a lot of traders were looking to allay their and their clients' risk. Fund managers who spent most of 2008 keeping distant futures high with their long positions, were scrambling to get to the sidelines. The result was extreme volatility.

And out in the country, cattle feeders who feel they've about got their supply down to meet demand, were forced to sell cattle at .99 when they were hoping for a least a couple more cents.
Blame confusion and fear. Beef retailers and HRI folks lost their nerve, and spent the week buying only what they had to—and they will probably continue to think that way until the uncertainty goes away.

Another concern for the cattle industry was on the availability of credit. It's been bad all year, and it seems unlikely to get better after last week's action in the credit markets. Big cattle feeding operations require big bunches of credit, and they've been facing tight credit markets all year.

Nelson says most feeders are dealing with the same credit conditions today as they were in June and July, and "may be using much more of their credit line than in prior years.”

That, he says, "has made them rethink there feeder cattle purchases, and that has slowed "normal" seasonal feeder purchases,  as Friday's cattle on feed numbers confirmed

James Mintert at Kansas State University says that one of the big worries is the near term impact on beef demand if the general economy gets worse. He says that the fundamentals of the U.S. economy are sound—he's not running for office, so he can be frank—but worries that the Fed may not "get it right” in its efforts to balance the fiscal ship.

Mintert says beef demand had been slow the first half of this year, as consumers wrestled with high gas prices and food inflation. In slow times, people eat out less and trend to cheaper food stuffs, hurting beef in relation to lower priced proteins. The shock of last week can hardly help consumer confidence, he says.

But he expects to see exports continue to expand despite the global impacts. Price is not U.S. beef's biggest problem in the Pacific rim countries where the product has been recently reintroduce, he says. The problem there is U.S. beef's image, and price is actually a plus for U.S. beef.

By Friday, there seemed to be some calm returning to the markets. About all a cattleman can do, though, is hope it stays that way. Scared retailers and scared consumers make poor beef customers.