Post by Glenn on Mar 7, 2011 8:55:00 GMT -6
BY THE NUMBERS
Cattle on feed are 5% higher than last year. In February feedlots will market 5% more cattle than last year and at heavier weights. The economy is struggling. Unemployment is high. So how can the cutout be $173 compared to $150 last year? How can cash cattle sell for $113 compared to $90 last year? How can this be sustainable?
The answer is found in our current monetary policy. Quantitative easing [QE2] or printing money as realist call it, has devalued the dollar. This has kept interest rates low and forced investors to purchase equities rather than low interest bonds. But in other countries, the policy has made U.S. products and especially commodities cheap.
The Korean buyer of American beef is not complaining of higher prices. The exchange rates have benefited Korean consumers and kept our beef competitively priced. The Australian beef exporter has a complaint. The weak dollar has made it impossible to sell beef to the U.S. and American beef imports have dropped dramatically.
Expectations for the future will require even more increases in beef prices. Current quotes of summer prices on the CME will require a cutout of over $200. Even if this price is delivered by the markets, the cattle feeder will still fall short of a breakeven -- given the sharp rise in corn prices.
A glimmer of hope surfaced this week when even Secretary Vilsack, the bastion of irrational support for ethanol, conceded that current ethanol subsidies are no longer viable. This leaves Congress with the task of unwinding the ethanol subsidies that have disrupted food cost around the world.
This leaves the beef industry struggling for margins. Short supplies of replacement cattle will not be remedied in the near term. It takes years to rebuild the herd. In the meantime, beef supplies will be short and domestic consumers will find high prices that might impact buying decisions at the store.
Cattle on feed are 5% higher than last year. In February feedlots will market 5% more cattle than last year and at heavier weights. The economy is struggling. Unemployment is high. So how can the cutout be $173 compared to $150 last year? How can cash cattle sell for $113 compared to $90 last year? How can this be sustainable?
The answer is found in our current monetary policy. Quantitative easing [QE2] or printing money as realist call it, has devalued the dollar. This has kept interest rates low and forced investors to purchase equities rather than low interest bonds. But in other countries, the policy has made U.S. products and especially commodities cheap.
The Korean buyer of American beef is not complaining of higher prices. The exchange rates have benefited Korean consumers and kept our beef competitively priced. The Australian beef exporter has a complaint. The weak dollar has made it impossible to sell beef to the U.S. and American beef imports have dropped dramatically.
Expectations for the future will require even more increases in beef prices. Current quotes of summer prices on the CME will require a cutout of over $200. Even if this price is delivered by the markets, the cattle feeder will still fall short of a breakeven -- given the sharp rise in corn prices.
A glimmer of hope surfaced this week when even Secretary Vilsack, the bastion of irrational support for ethanol, conceded that current ethanol subsidies are no longer viable. This leaves Congress with the task of unwinding the ethanol subsidies that have disrupted food cost around the world.
This leaves the beef industry struggling for margins. Short supplies of replacement cattle will not be remedied in the near term. It takes years to rebuild the herd. In the meantime, beef supplies will be short and domestic consumers will find high prices that might impact buying decisions at the store.