"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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Beef Lovers should Prepare for Sticker Shock at the Meat Counter
As some of you who regularly read this blog are no doubt aware, from time to time I will comment on the cattle/beef and hog/pork markets as those are the markets that I cut my teeth on and still are my bread and butter. While the consumer has thus far been insulated from any negative fallout from the massive money creation of the Fed and its QE programs, something has been happening in the livestock markets which will affect everyone who enjoys a good quality steak or beef roast. What I mean by this is that a shortage of cattle has sent wholesale beef prices soaring into record all-time high territory with the trade unsure of just how high prices are going to go before this balloon runs out of hot air.
Take a look at the following chart of the wholesale price of choice beef ( this is a composite price). I have included the data going back exactly 4 years to give you a sense of what has been quietly occurring. Beef prices have increased a whopping 65% in this period! Think about that again!
Yet, many consumers have not yet noticed it because grocers and restaurant owners have been trying to absorb some of the price rise so as not to hurt their business. They share the same concern that many of us also have, namely, an economy, that while the consensus is that it is slowly improving, certainly has not experienced any of the type of growth rates that we are accustomed to seeing with economies coming out of recession. They are aware that consumers remain extremely price conscious and thus have opted not to pass on the bulk of the increase in prices. That is about to change and change rapidly.
The price rise has been of such magnitude that they are no longer in a position to absorb the impact of the high prices without passing it on the consumer. It generally takes a while for the beef that has been purchased to work its way through the pipeline so the brunt of this increase will not show up for a few more weeks, but show up it certainly will.
Just get ready folks - that steak is going to seem like a meal that only royalty can partake of! Personally I am of the view that it is too bad that beef is a perishable commodity - I could have sold gold and loaded up on beef steaks and unloaded them out of the freezer and retired had I been able to do that!
Savvy Najarian says GDXJ is still a good buy; train just leaving station ?http://www.thestreet.com/_yahoo/video/12244287/najarian-dont-wait-to-jump-on-junior-gold-miners-etf.html?cm_ven=YAHOOV&cm_cat=FREE&cm_ite=NA&s=1
ReplyDeleteWell, it's either train leaving station, or another flop. I hope it's the former, but I fear (and think) it's the latter. Next week will be most telling, I think.
ReplyDeleteTrains have a way of going off the tracks too ( after they leave the station). What gives me hope is that for last 2 months GDX, HUI have been making high highs and higher lows; if that pattern should change I will get out.
DeleteIn Dec, placed a decent percentage of my IRA funds at American Century Funds into ttheir BGEIX and have done twice as good as the SP in last 30 days. In stocks my combo of IAG, KGC has done wellin last couple of weeks. HMY is my big dog from a year ago. So much for this week/weekend. See u Monday.
May Goddess Tyche smile upon your endevors, my brother!
DeleteLMAO! Every time gold rallies everyone turns into a bull. Every time it drops even $10 bucks everyone turns into a bear.
ReplyDeleteAnyone else notice this is on low volume plus it basically gets capped at 1255. They might run it up to 1262 but likely won't take the chance that the rest of the market jumps in and gets it higher than they want.
Seems to me like a vacuum suck getting longs in just enough to knock it down one more time, not enough momentum on the last attempt at 1180.
This is golds third attempt at 1255ish and failure could very well cause the next leg down - perfect timing with the FOMC meeting Jan 30 for more tapering:
http://blogs.wsj.com/economics/2014/01/10/hilsenrath-analysis-job-report-alone-unlikely-to-alter-feds-course/
Hello Dan-
ReplyDeleteDo you contribute the increase in beef prices to simple supply and demand forces? Could it be that when corn prices were hitting record highs the last couple years many ranches could simply not afford to feed their animals and were forced to cut their herds? Now the market is seeing a diminished supply of beef. Do you suppose with the current low corn prices and high beef prices, that supply will soon enough be replenished and lower beef prices will prevail later in the year or next year?
Thank you for your great blog....
JG
Jeff777;
DeleteYes, on the supply/demand scenario and the higher prices for both beef and cattle. I have done a couple of interviews for the wire services and some newspapers about this. You are correct on the sharp rise in corn prices.
It was a double punch to ranchers. We have had back to back years of drought. The first was 2011 in the Southern Plains and the next one was in 2012 across the Midwest and parts of Kansas. Ok, northern Texas. that dried up the pastures to the point where nothing was left to graze cattle upon. Then corn prices were between $8.00 - $7.75 making feeding cost prohibitive since the price being paid for cattle at that time was sinking as the number of ranchers liquidating herds out of necessity was sharply rising.
Now that corn prices have come back down to earth, and pasture conditions across the central part of the country are very good, ranchers are looking to expand herds again. There is a lag in time however between the decision to expand a herd and the point where those cattle are mature enough to slaughter.
Yes, there should be an excellent opportunity to short cattle at some point ahead. I can tell you that the livestock markets can be treacherous to trade as they make big swings in price, many times unexpectedly so you have to be nimble and knowledgeable to be successful in there.
Start very small in size if you are going to try to get your feet wet.
All the best of success,
Dan
With a potential shorting opportunity for traders coming in the months ahead....
ReplyDeleteDan, I had to laugh when one of your antagonists mentioned bellies; how many years now has it been since we quit trading them? Also, another guy who thinks corn trades at $700; lmao in sparks
ReplyDeleteHistory has taught us that once a commodity spikes to extreme highs, it ends up being an epic shorting opportunity.
ReplyDeleteJust look back and see the massive price spikes in Spring Wheat, Natural Gas, Crude Oil, Cotton, Gold, Silver, etc. each time it got out of hand and everyone was talking about it, it was a once in a lifetime shorting opportunity which for adept futures traders, was an opportunity to profit then retire.
That's what happens when money out of thin air is created within the trillions, too many speculators ride momentum trends in commodity markets and eventually get wiped out.
That is the reason why printing faster and faster is wildly bearish for commodity prices.
Too many Riverboat Gamblers jump on the hyperinflation train and end up getting carted out on stretchers.
LOL...
Betting on hyperinflation is like betting on the end of the world. As the wise man said, you can only be right once and you'll not even be able to cash in.
DeleteI did bet on moderate to high inflation and I still think it's coming (in some areas it's already here), but hyperinflation in the economy of this size is not probable, I don't care what Peter Shiff and James Turk say. No disrespect to either one of them.
funny you should write this post on the same day I drove past a dollar tree store in a strip mall and their weekly special was a 3.5 oz frozen ribeye steak for $1.00. Can't even buy a burger for $1.00 off of MCD's value menu any more.
ReplyDeleteOn another note, $8.00 corn prices in Aug 2012 due to the summer 2012 drought leading to slaughter of feeders was not the only contributing factor to higher cattle prices. A freak storm, monster blizzard in South Dakota in October 2013 led to the unavoidable deaths of who knows how many 1000s of cattle. http://news.nationalgeographic.com/news/2013/10/131022-cattle-blizzard-south-dakota-winter-storm-atlas/
And the Artic blasts of the past few weeks have not been kind to cattle either.
Interesting. John. So... 3.5 0z for $1 or $4.57/lb, clearly its going to be select and likely toward the end of its shelf life. That said, it's still 4.5x the cost of pounded boneless chicken breasts at Safeway. It's no surprising that beef is going to be less in demand as the masses can't afford high part of the food chain items. Chicken and eggs pork will be come Giffen goods and go up in price.
DeleteSee this article from Paul Craig Roberts very insightful
ReplyDeleteThe Hows and Whys of Gold Price Manipulation
Dan-
ReplyDeleteI check your blog every so often because I find your commentary very insightful (or inciteful as the case may be lol). Haven't seen you comment on cattle before, but your analysis and especially your response to Jeff777 is spot on. My family is in the meat packing business, has been since the 1930's so I grew up with it, even did some cattle and feeder hedging for the family firm back in the '80's (we were feeding about 10,000 head at the time to supplement supply to the slaughtering operation).
Anyway, we had our annual meeting yesterday to review business results and current climate. Most interesting thing discussed in that meeting is the growing beef consumption in China, more and more Aussie & NZ beef heading that way and less to the US. Prognosis is AUS/NZ beef to eventually be claimed in its entirety by the Far East markets. Feeling is that those sources are going to be replaced to a large extent by South American supplies, Uruguay is a big one and Brazil is anticipated to enter the fray soon. Meantime the import situation is one other factor adding bullishness to the domestic market, although the effect is somewhat limited as imported beef goes almost entirely to ground beef production.
Apple Al;
DeleteThanks for taking the time to post these comments. I always appreciate hearing from folks in the industry, especially those who have been around a long time.
It sure has been a case of feast/famine in the cattle industry the last couple of years. Most of the meatpackers that I am aware of are finally cutting in the black after having do deal with miserable margins for a long time so I am happy to learn that. My understanding is that they have reduced the chain speed to try to boost the beef and it looks as if they have been successful judging from the rapid rise in the Boxed beef. My big concern is the demand side of this equation as I am more and more of the view that beef is going to price itself out of the reach of many at this steep price rise.
It does look as if we will continue getting relief from these soaring grain prices for at least the next year depending on what kind of weather we get up here for our growing season. Pastures, except for California, look pretty good from what I am hearing. Maybe some guys will be able to recoup some of those devastating losses that they have been undergoing. I sure hope so.
Here is wishing your family business a profitable year as well. Thanks again!
Dan
Speaking about beef.....after talking about it for a year, finally stopped by and tasted a burger at the newly opened " IN and OUT burger " place here. Good stuff !...royalty definitely do not know what they are missing.
ReplyDeleteWow, another terrifying, epic collapse in gold and silver this morning.
ReplyDeleteMonstrous gap down in GLD and GDX on the open.
More mining CEO's are going to go broke this year, I guess...
You haven't seen nothing yet: That GOLD is going to test $1,180 and SILVER will break down below $18.50. Don't be surprised to see GOLD below $1,000 and SILVER around $14 by as early as March. In the meantime trade some winning sectors. There's some opportunities out there. The only fly in the ointment is how next week's FOMC plays out and if we have some major terrorist attack at the Super Bowl XLVIII. Have to watch out but if we get through January without incident we are off to DJIA 20,000 without a problem. If we get a day or two of 200 to 300 point DJIA reversals that would be about it.
DeleteI hate GOLD and SILVER bullion. And I have it in for the pumpers. You want to bash some pumpers go check out THE NEWS UNIT dot COM
Wow am I up early today. Have to catch a worm in pre-market. GLTA.
You hate them or you love them : in both cases, don't trade them.
DeleteI'm done trading today Hubert. Just checking everyone's opinion in all sorts of places. Traders are wore out as usual and the news is working overtime at trying to drive the markets into a frenzy. But the markets are actually kind of dead right now.
DeleteAMAZING ! GLD sharply down; GLD,GDX, HUI up nicely
ReplyDeleteBuy, Buy, Buy ( Gold stocks like IAG, SA, KGC and Platinum stocks like PLG )
also check out MUX big W pattern with a higher low on the second V … I don't see miners making new lows from here , even if gold goes to 1100 … some of the miners have been doing really well since december last year , so many people expecting new lows in gold with the already very negative sentiment … hard to imagine , I wish , so I can buy more miners at lower prices … but it doesnt seem so , we have now a group of leading names taking off .
ReplyDeleteNice up moves on some of the stocks I have been touting on this board for several days now: IAG,KGC,FSM,PLG. Even long dead Uranium stocks like DNN have risen from the dead.Stocks always forsee events 3 to 6 months ahead of the underlying commodity.Who cares about Gold itself ( other than to buy a few Maple Leafs or Eagles to stash away).
DeleteNow if GDX and GDXJ break their month long patterns of higher highs and higher lows then I wil bail out immediately.
Your blog's posts are very awesome, i enjoyed the posts of your Blog while reading,Thanks for sharing such a wonderful blog and giving the guidance how to choose right Stickers.
ReplyDeleteStickers Chicago