Beef market''s unbubble

January 11, 2009 06:00 PM

Steve Cornett

We are in a historically bad cattle market. Talk to the old guys and they say it is worse than the 80s and reminds them of the wreck of the early 70s.

Unhedged cattle sold last week—and most of them are now unhedged, the futures market having gone to ground with the hedge fund funny money—lost $200 to $250 per head, and it's been that way for weeks.

Last week, the U.S. produced 4% less beef than the year before, and fed cattle sold for 8% less money. Taken alone, those figures tell you that beef demand is not healthy. But, it's hard to pin it all on the supply-demand equations.

The cattle market, like the general economy, is having a psychological rough spot.

It's not just the losses past that worry the old timers. It's the prospect of losses future because, as Don Close of Texas Cattle Feeders Association put it last week, "if you don't know what's wrong, you don't know how to fix it.”

The market is well under anybody's predictions, and it's not because there are too many cattle. Granted, there is a world of cheap protein to compete with, but the root problem is this stupid general economy. Consumers are scared to spend. They've tapped out their credit. They're scared they going to lose their jobs,  maybe even their houses.

Overseas customers are not much better off and the drop credit—composed mostly of stuff sold into export—is more than 30% lower than it was a year ago.

That has taken more than $30 off the value of a fed steer. On top of that, Close pointed out that the reduced demand for high end beef cuts has hurt even more. He estimated that the drop in rib values alone since mid December has erased nearly $80 per head in value.

And, with warnings of deflation littering the pages of the Wall Street Journal, nobody—neither packers, retailers nor restaurateurs—wants to buy anything he hasn't already sold.
Gosh, we knew oil and real estate and grains were in bubbles, but nobody told us that beef was in one, too. But as the bubbled up commodity markets crashed last fall, cattle and beef were sucked into the vortex.

This time of year, you can always hope for somebody else to get a blizzard and put a bottom under prices. Within a few weeks, the surviving cattle feeders will be selling cattle they've fed on cheaper corn and their breakevens will fall further below the $1 they're currently needing. So maybe they'll get some relief then.

But short of that, Close's point is dead right. Bad as demand is, it's hard to see a good reason for beef to be so cheap right now.

I guess we're in an unbubble. Or whatever you call the opposite of a bubble, where the irrational exuberance Greenspan used to describe an overheated stock market has been replaced by irrational despondency.

It will end. Such periods always do. And they are always followed by strong markets and grand recoveries.  

But you may have to grit your teeth a while.

Steve Cornett is editor emeritus at Beef Today. You can reach him via e-mail at

This column is part of the Beef Today Cattle Drive e-newsletter, which is delivered to subscribers biweekly and includes beef industry analysis, market information as well as the latest beef headline news. Click here to subscribe.


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