Big Boys use certainty to cut cattle prices

The cattle futures speculators, Big 3 meat packers and their handmaidens who own big feedlots, have used their power to corner the Chicago Mercantile Exchange this last week, and drive cash fed cattle prices down $2-$3. This is after a loss last week of $1-$2.

Simple supply-and-demand free market economics paint this as ludicrous. Slaughter-ready fed cattle supplies are very short. The U.S. Cattle Inventory report shows cattle numbers down more than forecast. These are conditions ripe for firm to higher fed cattle prices. But by playing on the uncertainty of market direction, wholesale beef bookings, consumer beef demand due to high gasoline and food prices--the Big Boys have rolled cattle owners into lower prices.

This is how the futures market and the near-monopoly on meat packing the Big 3, soon to be Big 2, meat packers have. There is no competition when they choose to put pedal-to-the-metal.

Meat packing is a very cash intensive business, and only the heavily capitalized public firms on Wall Street can come up with it on the scale necessary to meet demand. Cattle have to be paid for before they can be killed. Modern packing plants are massive installations with hundreds of employees, all of whom must be paid before the plant can collect from the sale of meat. Cash flow needs are enormous, and can only be met through Wall Street short term debt offerings.

That's why individual cattlemen are at such a huge disadvantage on cattle pricing and leverage. They can rail against it, but are powerless to do much about it.