has the bubble burst

[jodywy]

http://www.cattlenetwork.com/Cattle...e.aspx?oid=1300742&src=email_a_friend_visitor
Cattle Market In "Bizarro" World As Speculators Fuel Record Rally
01/19/2011

Cattle futures in Chicago fell from record highs today in what some traders said may be a prelude to steeper declines if a rapidly expanding commodity price bubble bursts.

CME Group traders such as Jim Sauter say cattle prices have climbed above levels justified by current supply and demand patterns. While the total U.S. cattle inventory is near the lowest on record, beef production actually increased last year because of heavier animals, Sauter noted.

Additionally, growing concern over food inflation has propelled a flood of speculator money into grain and livestock futures, setting markets up for a repeat of 2008, when prices surged before tumbling sharply, Sauter said.

Investors have "all been drinking the Kool-Aid" by making stepped-up bets based on accelerating food inflation, said Sauter, an independent trader in CME's feeder cattle pit. "The bubble is about to burst, just like in '08."

In trading today, February live cattle futures fell 40 cents to the equivalent of $108.80 per hundred pounds. Yesterday, February futures touched $112.375, the highest for a closest-to-expiration contract since CME launched cattle futures in 1964.

January feeder cattle fell 30 cents to $127 per hundredweight, down from a record $128.60 yesterday. March futures fell 45 cents to $127.50, after reaching $130.025 yesterday.

Live cattle futures hit the market's previous record, $107.05, during September 2008, shortly after a broad commodity price run-up that sent crude oil to an all-time high near $150 a barrel. By the end of 2008, cattle prices fell as much as 25 percent.

As in 2008, hedge funds and other speculators were heavy buyers in grain and livestock futures over the past year. Swap dealers and managed money, the two largest categories of speculators tracked by regulators, held 34 long positions for every one short position in CME feeder cattle futures last week.

In another gauge of investor bullishness, the speculator net-long position in feeder cattle futures and options totaled 18,622 contracts for the week ended Jan. 11, according to the U.S. Commodity Futures Trading Commission. That was the largest net-long position in feeder cattle since at least June 2006, when the CFTC began tracking the data, according to Bloomberg News.

"Our fund participation is at a record," Sauter said.

Other traders have grown increasingly skittish as prices surged. Some meatpackers, who've seen losses balloon as prices rallied, may cut slaughter, said Phil Stanley, an independent trader at CME.

"This is bizarro world," Stanley said yesterday. Cattle futures are "probably $4 to $5 overpriced. We're a house of cards here."

Still, analysts note that cattle prices are high for sound reasons, primarily a smaller herd and improving demand.

U.S. beef exports during the first 11 months of 2010 rose 18 percent over the same period in 2009, to 2.08 billion pounds. Yesterday, wholesale boxed beef averaged $1.7281 a pound, the highest since a record $1.7380 in July 2008, according to U.S. Department of Agriculture data.

For feeder cattle, stronger prices also reflect fewer calves. Last year, the U.S. calf crop fell to 35.4 million head, the lowest in 60 years, according to a USDA estimate.

Hog prices also fell today after rallying for much of this month. CME February lean hog futures fell 0.475 cent to 80 cents a pound, after yesterday reaching $81.525, the highest price for a front-month contract since August.

 

[young rancher]

Those are very interesting comments and it made me take a look at the markets closer.

We have been seeing the Live Cattle futures start to reach their top since 2011 started. Also, like you mentioned it is not people who understand cattle that are investing, it is hedge funds and other speculators. Therefore, for the next couple of days you will see investors deciding to "take the money and run" or buy in deeper. We saw that today with the sideways movement in the market. Actually, looking at the grain and other cattle markets it looks as though all speculators are unsure if they should cash out or buy more. The ceiling price has been set at 110.50 by the market. The market decrease since this time has been speculators "cashing out." However, Monday the floor was tested at roughly 106. Since then it has been tested once more. It will take at least another day or two to decide which direction the market will choose.

From a fundamental standpoint, it looks like the numbers are mixed. The decrease in the calf crop gives strong support to the market, yet if carcass weights are up then we will see some pressure down. However, it will be hard to overcome the lose in pounds produced due to the decreased calf crop. The box beef price probably has some room to move as we have not reached 2008 prices, but with the state of the US economy being still so fragile the only way to sustain a high price will be the export markets.

The largest concern with the market now is when are consumers going to switch from beef to pork and chicken because of price. If the US economy starts to show more signs of recovery the industry could see prices they have never seen before if the consumer can justify them. As much as the market is focusing on the technicals and fundamentals, the largest concern will be the US economy and its recovery.


In my personal opinion, the best place you, as a producer, you can be is in the cow calf sector of the industry. With the rise in prices you have the most opportunity to get out of the market if prices were to start decreasing; however, if prices continue to rise you are able to gain the most from keeping them as stockers or even finishing them out.

 

[hypocritexposer]

Also, like you mentioned it is not people who understand cattle that are investing, it is hedge funds and other speculators. Therefore, for the next couple of days you will see investors deciding to "take the money and run" or buy in deeper.

I'm pretty sure if speculators were responsible, OT would have let us know by now.

 

[burnt]

From an email I received yesterday from an acquaintance -

"Talked with a guy today from S. Dakota, he tells me Superior Livestock had quotes for 4 wts for Oct at 1.93, big money.

Hang on, we finally got on the right ride!

. . . .


A package of Char X 640 wts at Hoard's today $162."

That would be $1036.00 . . . . . . . . :shock:

Some folks with dust on their shirts and dirt on their boots seem to be helping out a little bit, I'd say.

 

[leanin' H]

Thanks for the great article and information on the market. Thanks to you Burnt for the PM explaining it very well to a hick from the sticks. We are a long way away from the feedlots in the midwest and our prices are lower because of that. But I know a guy who just sold 850 weights for a Feb. 15 delivery for $1.18. A thousand dollar calf is a pretty good thing! Lets all hope this market atleast stays where it's at if not increases. Heaven knows it due. Hope you Canadians can cash in too!

 

[ANGUS327]

Yesterday on TEAM 890# steers sold for $1.22 lb thats $1085.00, pretty good money I'd say.

 

[Big Muddy rancher]

I'm hoping this is just a little "profit taking" and the market holds strong. All producers need to gain a little ground as inputs will keep going up even if it's just because of higher energy prices.
Looking at charts is a good way to get confused,optimistic and depressed all at the same time.
Ag Canada's beef supply at a glance is showing Canadian carcass marginally lower. Hfr slaughter up 12% and Strs down 11.3% and cow slaughter down 31%. Alots of cows have already gone. The Hfrs are are at 78% of the strs for numbers. This data is only year to date for 2011.
Our numbers mean so little in the big picture as our weekly kill is pushing 50,000hd compared to the US kill at 295,00.

 

[Anonymous]

Beef prices to be driven by consumer demand in 2011





Donald Stotts, Oklahoma State University

via Western Farm Press

Jan. 28, 2011 11:15am



While many in the U.S. cattle industry are looking at current high beef cattle prices and wondering if and when the bubble will burst, market factors seem to indicate that a sudden and sharp fall is not likely to be forthcoming.



"The recent pullback in prices is not unexpected, but beef prices will more than likely push beyond the $108 of a few weeks ago as the cattle market's traditional springtime strength factors in," said Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist.



Peel believes that 2011 will be the year when the U.S. cattle industry discovers just how much demand for beef products exists amongst consumers.



"Beef demand in the retail marketplace is going to be the major limiting factor as to how high cattle prices can go," he said. "It's going to be what consumers can and are willing to absorb in terms of higher prices for meat. What is going to happen in 2011, more so than the past couple of years, is that the beef industry will be passing the impacts of what we've been building toward on to the consumer."



The underlying supply situation that is the major driving factor of current beef prices has been developing since the early 2000s, when drought conditions across a significant portion of the United States extended the last major cyclical herd liquidation.




"Bovine Spongiform Encephalopathy shocks in 2003 pushed the industry to new levels of intensity with tight feeder supplies offset by placing ever younger and lighter cattle into feedlots," Peel said. "This reaction worked well as long as corn was cheap."



By 2004, prices had reached a level that resulted in limited herd expansion in 2004 and 2005. In 2006, the world marketplace changed with grain prices jumping to new levels, which have continued fundamentally higher and provoked long-term beef industry adjustments that continue to this day.



Peel said the loss of profitability caused by high and volatile input prices since late 2006 also prompted additional liquidation, which has contributed to today's extremely tight cattle inventory numbers.



"The point is that there are some very solid reasons why we are seeing high cattle prices," he said. "Limited cattle numbers, high grain prices that temper carcass weights and the need to reduce heifer and cow slaughter all suggest that supplies will tighten significantly in 2011 compared to recent years."



Wait a minute, some contend; when it comes to beef prices, what about the limiting factor of competing meats such as poultry and swine?



"Competing meats always play some sort of role, but the current situation seems to indicate that poultry and swine will be less important in terms of driving beef prices than they have been in the past," Peel said.



Pork looks to be pretty similar to last year in terms of market share, though retail prices will tend to be higher than that of past years for consumers, as with many goods and services because of the far-reaching effects of the recession...



more

http://westernfarmpress.com/equipment/beef-prices-be-driven-consumer-demand-2011

End of cheap food era as grain prices stay high: Reuters poll



By KT Arasu, Reuters

Fri Jan 28, 2011 9:06am EST



CHICAGO (Reuters) - U.S. grain prices should stay unrelentingly high this year, according to a Reuters poll, the latest sign that the era of cheap food has come to an end.



U.S. corn, soybeans and wheat prices -- which surged by as much has 50 percent last year and hit their highest levels since mid-2008 -- will dip by at most 5 percent by the end of 2011, according to the poll of 16 analysts.



The forecasts suggest no quick relief for nations bedeviled by record high food costs that have stoked civil unrest. It means any extreme weather event in a grains-producing part of the world could send prices soaring further.



The expectations may also strengthen importers' resolve to build bigger inventories after a year in which stocks of corn and soybeans in the United States -- the world's top exporter -- dwindled to their lowest level in decades.



While grain prices remain below the historic highs of 2008, they could remain stronger for longer this year as intense competition among crops for land use and depleted grain bins make it an even greater challenge to restore equilibrium.



"Even if we have a good year, we are not going to have the inventories we've seen before. I really do think the time of cheap food prices is over, and that's just it," said analyst Chris Mann of Traders Group Inc in Chicago.



"Everything is set to the point where supply equals demand right now. But if you pull one thing out of it, or if you disrupt the equation in some little way or tweak it, I think, with inventories as tight as they are, it will really have an impact on prices. A drought, a flood, anything," said Mann...



more

http://ca.reuters.com/article/businessNews/idCATRE70R3EY20110128

 

[Trinity man]

I have been saying our supply is running short in cows for a while. Thats what is driving these prices. Corn and other grains can do what they want, but when the animals aren't there and you have hungry people to feed prices will go up. Now its a matter it people can afford the food to eat. You can bet other activities people spend money on will slow down a lot now.

 

[Triangle Bar]

It looks like the beef herd is still contracting.

Cattle Inventory Report: Bullish Beef, Bearish Dairy
JANUARY 28, 2011
By: Julianne Johnston, Editor

Wow! The headliner of this report is beef replacement heifers, which came in 5% under year-ago. Combined with the cow kill we saw in 2010, the beef herd is getting smaller -- much smaller. Beef cow numbers alone suggest the 2011 calf crop will be down 2% from the 2010 calf crop.

Speaking of the calf crop, the 2010 numbers are down 1% from year-ago. That's the fifth year in a row of smaller calf crops. The 2010 calf crop at 35.685 million head is down 5% from 2005 -- the last time we had a bigger-than-year-ago calf crop.

The second headliner in this report is calves under 500 pounds. At 3% under year-ago, beef supplies for the second half of this year will be tighter than current prices reflect.

The other side of the coin is the dairy industry. Milk replacement heifers came in 1% above year-ago, as did milk cow/heifers calved. While the beef herd continues to contract, the milk herd is expanding.

Based on this date, the cattle market should open stronger Monday, with the strongest price gains most likely in deferred live cattle futures.

http://www.usda.gov/nass/PUBS/TODAYRPT/catl0111.txt

 

[Texan]

http://www.youtube.com/watch?v=UBhQhKWOZmk

 

[Denny]

Well I kept 45 heifers back this fall and intend to do the same next also. I have to keep welding to make it work because bill money needs to come from somewhere.I've purchased a couple pieces of land as of recent years plus some machinery. All needs to be paid for somehow.

Land is going to be the problem. Between corn and potatoe guys here they are begining to drive up land rent values.I've heard of sand ground south of town renting for $350 an acre and the leasee will put up the center pivots. This is on land that was'nt worth $300 an acre 10 years ago.

 

[Anonymous]

Before I say anything else, I'm glad the prices are what they currently are for our products. That being said, it scares the heck out of me too. Beef prices are finally coming into an area where we can receive a decent profit. But, how much profit is going to be there when this thing crashes. Grains are at an alltime high too, and aren't grain products in even more demand than beef? If the price of food is going to increase across the board, won't beef be one of the first products left on the shelf? Grains go into so many products that people need and use and the public doesnt have much choice other than absorb the higher cost. Am I thinking wrong?

 

[Faster horses]

Bar Bar 2, the little that I've read said the demand is going to come from
exports. Many other countries are doing better than the US and they
eating and wanting our grain-fed beef. FWIW.

Too bad we have to worry and not just enjoy the good prices.

 

[Anonymous]

I'm not trying to argue FH, but where are those countries? Everything I've read and seen on the news, talks about countries either going or being broke. Ireland, Greece and Egypt come to mind immediately. Is there enough export demand out there to overcome the prices? Won't the high grain prices have an adverse effect in those countries that want our beef. Normally I am a very optimistic person, but this cattle market scares the hell out of me. We've all seen crashes before and it always seems like the higher it climbs the further it falls.

 

[Kato]

The thing to remember is that it's just getting back to the prices of 2003, in Canada's case, and I don't know when, in U.S. terms. I can't think of any other profession where someone would say "Whoopee, I'm making the same wage as I did eight years ago.. let the good times roll!" :roll: :roll:

Cattle numbers are down, and it's not because of retained heifers coming off the market. That's an indicator right there. There is a silver lining to higher grain prices too, and that's the fact that fats don't get held over, keeping carcass weights from getting out of control.

Futures markets are a casino, and have nothing to do with the real world any more.

 

[Big Swede]

It seems to me that in the near future if the cost of food gets higher people will maybe decide that food is more important than boats, pools, big screen tvs, cell phones, internet, movies, the list could go on but you get the idea. Americans have been spoiled by cheap food for so long it will be a tough transition for most. Just my opinion.

 

[Anonymous]

I agree Swede. My question that I've been asking is this, have Americans become so used to these privileges and luxuries that they now believe they are entitled to them? And if this is the case, will they then turn to our lawmakers to remedy the situation? Are the high prices that we are now enjoying worth possibly more government intrusion and regulations down the road? I understand the economics the rancher has faced and continues to face. I'm just worried about what these prices could lead to in the future.

 

[leanin' H]

I agree Swede. My question that I've been asking is this, have Americans become so used to these privileges and luxuries that they now believe they are entitled to them? And if this is the case, will they then turn to our lawmakers to remedy the situation? Are the high prices that we are now enjoying worth possibly more government intrusion and regulations down the road? I understand the economics the rancher has faced and continues to face. I'm just worried about what these prices could lead to in the future.

Things might get like they did during the depression. And they might not get that bad. But I have no doubt folks in agriculture will survive. Because folks have to eat. They don't have to have DVDs and new cars and clothes. They have to eat. Every market provides chances for opportunity if a person is willing to think and work. Even with a bad economy and high unemployment, direct marketing our beef to families is simply off the charts out here. If they bought comparable quality beef in a supermarket they would pay $2000 minimum. They find their dollar goes further buying local, clean, safe beef and they just keep calling. I am not saying it is the only way to sell calves but it works. Find the ways that are out there that bring you the most bang for your buck. Corn and fuel and power are all more expensive than ten years ago or fifty years ago. But somehow, lots of folks are still running cattle. Maybe we are to dumb to know we are whipped.

 

[tenbach79]

Prices might fall back a bit but I think in the near future we will see about the same price. Cattle numbers are way down, and all thouse heifers are going into feed lots instead of back in the heard. I know for myself I really needed to and wanted to save heifers back this year but the price that I could get I just couldn't do it. I know for me in the long run that might come back and bite me butt, but I need the money this year.

Also some things that I read, this should be what we get for cattle and grain alike along time ago. For so long we as cattle producers and farmers have been making the best and safest food in the world and have not got much for it in return. That being said I wouldn't do anything else than being a farmer/rancher greastest job in the world.