Regular readers of the site will recall that I have been commenting on the rise in the price of beef this spring and summer. The reason goes back to the back to back drought years of 2011 and 2012 during which times pastures burned up and died while corn prices shot to all time highs near $8.00/bushel.
Ranchers unable to locate reasonably priced feed, had no choice but to liquidate herds. We saw the impact from that herd culling in 2013 and it has continued into 2014 as heifers are retained for breeding purposes.
The shortage of cattle has pushed wholesale prices ( and by consequence retail prices ) to all time highs. Anyone who has picked up some beef lately at the grocery store knows all too well what I am speaking of.
The old adage however that the "best cure for high prices is high prices" seems to be kicking in when it comes to beef and then to cattle. Consumers are reacting to record high prices by cutting back on expensive cuts of beef, instead opting for cheaper cuts when possible. Substitutes such as pork and chicken remain very expensive as well.
Eventually the high prices begin to choke off demand. We are approaching points at the wholesale levels where many traders fear that we are now meaningfully impacting the demand side of the ledger.
Cattle prices have sold off sharply the last two days. The October contract has lost nearly 550 points during that time span.
In looking at the chart, the trend high has been interrupted as a result of the sharp selloff. The turn lower on the ADX tells us that. Also, the -DMI line has crossed over the +DMI line for the first time since late April of this year. Momentum is also pointed lower.
As you can see by looking at the sloping trendline on the price chart, cattle could fall another 500 points or so and technically remain in an uptrend so it is too early to count them out just yet. That being said, the bears have finally seized some short term control of the market. The onus is now firmly on the bulls to perform here to prove otherwise.
There is some good news in this for the consumer however. I have made a point of stating that I believe we will see some relief from record high beef and pork prices later this year and certainly by early next year. The market is looking ahead and is pricing in some of that discounting. Our next July 4th bar-b-q shin-dig will cost us a bit less for the meat, that is for sure.
Cattle producers, at least those who have cattle to sell, have had an incredible run this spring and summer. Record high prices, prices which quite frankly I never expected to ever see in cattle country, were paid for their finished animals. After suffering immensely in 2011 and 2012, cattle ranchers have gotten some long overdue and well deserved profits. Good for them!
Depending on what kind of numbers we get from the USDA, and what kind of weather we get for the rest of the growing season here in the corn belt, their feed costs will stay low for some time. Pastures remain in excellent condition. Good news for them and ultimately for the consumer.
"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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