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SHAPE OF THE MARKET

Texan

Well-known member
An interesting commentary from The Cattle Report:


SHAPE OF THE MARKET

Just a short time ago, news of feedlot placements of 25% over prior year were filtering in to the market. The fears of market trouble in late summer filled the pages of market reports and most experts agreed prices were likely to move into the mid 80s in August before staging a minor rally into the fall. The current cash market for cattle dropped in April from a high of $100 to $90 quickly and the doomsayers suggested more to come.

Several components of the analysis were flawed. The heavy placements of April and May were against a very light placement period in 2009 and when compared to a 5 year average, the placements fell under the average placement number. The market did not anticipate a weakening of the dollar that followed making U.S. beef more attractively priced and imported beef too pricy. World beef supplies were in flux. Light beef production in Australia created less competition. South American beef that frequently sells for half the price of U.S. beef moved to a par with our beef not even factoring in the quality differences.

On the consumers side, pork prices jumped skyward. This improved beef's relative value when compared to pork and chicken. Consumers prefer beef and given some price competitiveness, they will migrate to beef. The price decline in the spring allowed retailers to build some margin back into the beef case.

The increase in fed prices is not all positive for cattle feeders. The impact of several years of declining herd numbers is showing up in the marketplace. Canadian inventories were recently reported at 5% under prior year and the second largest beef processor permanently closed a major beef plant. Stocker operators were facing the unusual prospect of selling a yearling this fall and finding the replacement cost of a calf to be close to the same price per head of the yearling they just sold. Swap a yearling for a calf.

The multiple opinions of where we go from here are as diverse as the numbers of people expressing them. Several facts are undisputed. The economy is not out of the woods and more trouble may be in front of us for years to come. The cow herd is in decline and as of yet there is no evidence of rebuilding. Feeding capacity still exceeds supply and some more closures may occur.

The key to future prices is probably going to be found in the value of the dollar. Markets are always made at the fringes of the supply demand curve. If the dollar relative to the yen and yuan remains weak, our beef may remain attractive for export to countries with stronger economies. The high price of pork can be reversed much faster than beef and could pose a competitive threat if producers ramp up. Finally, corn prices will be important to the price and breakevens for our beef and will influence both placement numbers and days on feed in the future.



http://www.agcenter.com/newcattlereport.aspx
 

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