Post by Glenn on Feb 27, 2011 20:36:40 GMT -6
SHAPE OF THE MARKET
The expiring February contract will leave April as the spot month trading at $114. April is traditionally the market high of the year. Last week's trade at $111-112 set an historical record high and some question if the market can continue up. Cattle owners can be expected to price cattle with the April board and only time will tell if higher price levels are attainable.
This year will offer contra historical marketing patterns. Heavy placements for the past six months will provide ample supplies of fed cattle through mid summer. Placements through the balance of the year can be expected to be in sharp decline. Winter wheat offerings will be smaller as farmers protect precious yields on $9 wheat. The smaller pool of replacement cattle caused by a declining cow herd will keep feeders in short supply and prices high.
The question in everyone's mind is the sustainability of beef consumption at the equivalent of a $200 cut out. Exports may be sustainable at this price because of a cheap dollar. Domestic consumption, however, is threatened and with unemployment at 9% and a weak economy, competition for the food dollar will be intense. Gasoline will be prominently featured as a increasing component of the household budget. Many find gasoline like food to fall into the must spend category.
It is the discretionary portion of the food dollar that will be explored in the coming months. Because of high corn prices, all meats will increase in price at the supermarket. The issue will be how sustainable is meat consumption, and more particularly beef consumption, and what percent of previous meat dollars will be dropped by some households. History has shown that eating patterns that are changed are often difficult to restore to previous purchasing levels.
An encouraging sign is the political shift occurring among politicians in their support for ethanol subsidies. It is getting difficult to find supporters. Even Grassley voted to rescind money allocated for infrastructure for a stepped up blend of 15% ethanol and the 15% blend was itself in line for the chopping block. This left Secretary Vilsack alone trying to justify what will be remembered as one of the dumbest public policy mistakes of the past few decades.
These theoretical propositions do little to relieve the anxiety of purchasing replacement cattle falling $10 cwt. short of a breakeven. The changing political climate is good but politicians move slowly and failed programs sometimes take far too long to correct. In the meantime, an industry is left in jeopardy.
The expiring February contract will leave April as the spot month trading at $114. April is traditionally the market high of the year. Last week's trade at $111-112 set an historical record high and some question if the market can continue up. Cattle owners can be expected to price cattle with the April board and only time will tell if higher price levels are attainable.
This year will offer contra historical marketing patterns. Heavy placements for the past six months will provide ample supplies of fed cattle through mid summer. Placements through the balance of the year can be expected to be in sharp decline. Winter wheat offerings will be smaller as farmers protect precious yields on $9 wheat. The smaller pool of replacement cattle caused by a declining cow herd will keep feeders in short supply and prices high.
The question in everyone's mind is the sustainability of beef consumption at the equivalent of a $200 cut out. Exports may be sustainable at this price because of a cheap dollar. Domestic consumption, however, is threatened and with unemployment at 9% and a weak economy, competition for the food dollar will be intense. Gasoline will be prominently featured as a increasing component of the household budget. Many find gasoline like food to fall into the must spend category.
It is the discretionary portion of the food dollar that will be explored in the coming months. Because of high corn prices, all meats will increase in price at the supermarket. The issue will be how sustainable is meat consumption, and more particularly beef consumption, and what percent of previous meat dollars will be dropped by some households. History has shown that eating patterns that are changed are often difficult to restore to previous purchasing levels.
An encouraging sign is the political shift occurring among politicians in their support for ethanol subsidies. It is getting difficult to find supporters. Even Grassley voted to rescind money allocated for infrastructure for a stepped up blend of 15% ethanol and the 15% blend was itself in line for the chopping block. This left Secretary Vilsack alone trying to justify what will be remembered as one of the dumbest public policy mistakes of the past few decades.
These theoretical propositions do little to relieve the anxiety of purchasing replacement cattle falling $10 cwt. short of a breakeven. The changing political climate is good but politicians move slowly and failed programs sometimes take far too long to correct. In the meantime, an industry is left in jeopardy.
