The bloom was off the rose in cattle markets this past week, both feeder and fed. As winter recedes and spring grasses start to turn green, the realities of cattle prices, ranch inputs and domestic beef demand come home to roost.
It might be happening a week or two early this year, spurred on by $5 corn, the spector of $4 gasoline and consumers buying less beef because pork and chicken are currently cheaper in the grocery meat case. They're buying $3-$4 gasoline too, and cutting back on grocery spending to cover the added cost. Negative media coverage and presidential campaign buzz to make things look as bleak as possible, are spilling over into consumer perceptions. Many really aren't personally affected by the housing crash, subprime mortgage crisis and higher unemployment.
Afterall, if you have a well-paying, stable job and own your home on a low interest, fixed mortgage with plenty of equity in it, which is the case with most Americans, all these overblown "crises" really don't affect you. But most people button their pocketbook anyway, expecting a rainy day right around the corner. That's what's happened to consumer beef demand.
This gloom was reflected this past week in cattle markets, as feeder cattle were $4-$6 lower and fed cattle out of the feedlot were $2-$4, mostly $3, lower. Markets have held up admirably so far this year, given the glut of negative news and market prognosticators forecasting lower prices that until this week, never happened. But finally, boxed beef demand retreated at the wholesale level, and packer operating margins sunk into the red. It was only natural they would pay less for fed cattle.
At the local feeder cattle auctions, spring graziers had begun to pencil in the cost of cattle, the cost of inputs, how much grass they really would have, and what the cattle will likely sell for off grass next fall, and decided to pay less for feeder cattle or not buy them.
Only the rookies were in panic, for veteran cattlemen have been through all this many times before--and certainly, much worse downturns than this one. It's just that annual time we always face, when reality sinks in.
Friday, March 7, 2008
Thursday, March 6, 2008
Bush a friend to foreign U.S. beef trade
The George W. Bush administration has been especially friendly to overseas trade of U.S. beef. They have kept it on the front burner of all trade negotiations during his two terms in office. Predecessors shuffled beef trade off to the background or corners of previous trade efforts, but perhaps due to his Texas cattle connections, Bush has been a strong friend.
This has been particularly true since the first Mad Cow Disease discovery in the U.S. and the subsequent bans of U.S. beef in Japan and South Korea, our two biggest markets for American product, after our continental partners of Canada and Mexico. As Japan and South Korea have sought improved access to this country for their manufactured goods, the price has always been acceptance of more U.S. beef in their countries.
While Democratic U.S. Sen. Max Baucus of Montana, who fancies himself a cattleman and great friend of agriculture, and is chairman of the Senate Finance Committee, criticizes the Bush Administration on the issue for partisan advantage in this presidential election year, most objective observers applaud administration efforts. Bush trade chief Susan Schwab says the governments of South Korea and Japan understand that Congress will not budge on approving a coveted bilateral trade deal until the beef issue is resolved.
Closed markets for U.S. beef are largely blocked by political barriers, not the health smokescreens Asian and European nations throw up to protect their own inefficient, small domestic beef producers. Asian nations, previously quite open, use the Mad Cow Disease scare--very hypocritical, since they have had vastly more cases in their own cattle than the two discovered in the U.S. in dairy cows imported from Canada.
Similarly, Europe claims U.S. beef producers use unhealthy growth promotants, and allows virtually no U.S. beef on the continent. In truth, stilbesterol and other hormones far more damaging than any allowed in the U.S., are highly prevalent in samples of European beef the U.S. has tested. This is protectionism, not protection of health. U.S. beef is the healthiest product available, far beyond the standards these countries allow in their own domestically-produced beef.
Foreign trade is crucial to the future of the U.S. beef industry, as this country produces a surplus of its product that must be sold overseas. Beef sold overseas is higher value than that sold domestically, and serves as a safety valve source to sell beef to, when the domestic market is saturated. There are nativist forces in the beef industry led by R-CALF, who are unwilling to do what it takes to sell beef internationally, but they are in a small minority among U.S. catttlemen.
More each passing year, beef, like all businesses, is part of a global economy and the more progressive forces within the industry recognize the necessity of reaching beyond our borders. Led by the internet and easy worldwide travel, the world is smaller and more interdependent than ever before.
The Bush administration has recognized this truth, and pushed foreign trade virtually across the board. But beef has been a centerpiece of it's policy.
This has been particularly true since the first Mad Cow Disease discovery in the U.S. and the subsequent bans of U.S. beef in Japan and South Korea, our two biggest markets for American product, after our continental partners of Canada and Mexico. As Japan and South Korea have sought improved access to this country for their manufactured goods, the price has always been acceptance of more U.S. beef in their countries.
While Democratic U.S. Sen. Max Baucus of Montana, who fancies himself a cattleman and great friend of agriculture, and is chairman of the Senate Finance Committee, criticizes the Bush Administration on the issue for partisan advantage in this presidential election year, most objective observers applaud administration efforts. Bush trade chief Susan Schwab says the governments of South Korea and Japan understand that Congress will not budge on approving a coveted bilateral trade deal until the beef issue is resolved.
Closed markets for U.S. beef are largely blocked by political barriers, not the health smokescreens Asian and European nations throw up to protect their own inefficient, small domestic beef producers. Asian nations, previously quite open, use the Mad Cow Disease scare--very hypocritical, since they have had vastly more cases in their own cattle than the two discovered in the U.S. in dairy cows imported from Canada.
Similarly, Europe claims U.S. beef producers use unhealthy growth promotants, and allows virtually no U.S. beef on the continent. In truth, stilbesterol and other hormones far more damaging than any allowed in the U.S., are highly prevalent in samples of European beef the U.S. has tested. This is protectionism, not protection of health. U.S. beef is the healthiest product available, far beyond the standards these countries allow in their own domestically-produced beef.
Foreign trade is crucial to the future of the U.S. beef industry, as this country produces a surplus of its product that must be sold overseas. Beef sold overseas is higher value than that sold domestically, and serves as a safety valve source to sell beef to, when the domestic market is saturated. There are nativist forces in the beef industry led by R-CALF, who are unwilling to do what it takes to sell beef internationally, but they are in a small minority among U.S. catttlemen.
More each passing year, beef, like all businesses, is part of a global economy and the more progressive forces within the industry recognize the necessity of reaching beyond our borders. Led by the internet and easy worldwide travel, the world is smaller and more interdependent than ever before.
The Bush administration has recognized this truth, and pushed foreign trade virtually across the board. But beef has been a centerpiece of it's policy.
Wednesday, March 5, 2008
Not a cattle futures fan
I like beef cattle. Live, standing before me on the ground, countable, so you know how many actually exist in a feedlot pen, on a ranch pasture or in a corral at the packing plant. These are breathing, actually existing cattle, owned by real people with real money invested in them, real commitment on the dotted line.
This is as opposed to trading cattle futures contracts at the Chicago Mercantile Exchange. One side of each contract allegedly owns real existant cattle, while the other side is a speculator who does not. Bringing them together is a futures floor trader at the Merc, who is paid a commission on each contract he trades.
The futures trader does not care whether prices go up or down, north or south--just so they move. He makes his money on the volatility. The wilder the market swings, the more trading and more money he makes. Cattle futures encourage market volatility, just the opposite of the often-quoted saw that they bring stability and liquidity to the market. The claim for futures is that they limit risk, when in reality they create and cause greater risk.
The two major movers of futures markets are breaking news, and government reports on the industry covered. Both have played in to the major drop in cattle futures prices yesterday and today.
The news is the sales of both National Packing Co. and the beef packing division of Smithfield Foods to the Brazilian conglomerate that already owns Swift and Company in the U.S. This will make them the largest meat packer in the U.S. and probably the world. They will be bigger than current number one Tyson Foods and Excel. A favorite futures trader word came into play, saying this news added "uncertainty" to cattle futures markets.
Government reports are a stickier wicket. The most famous are the USDA Cattle-on-Feed Report and USDA's biennial Cattle Inventory Report. These are received by the futures markets as the holy grail, handed down from on high as the unassailable truth of how many cattle exist.
The dirty little secret is that USDA does not go out to a single feedlot pen or a single ranch and actually count the number of cattle that really exist. Their reports are estimates, based on computer models and simulations, that are frequently corrected weeks and months after they have already destroyed market prices--in essence, the government admitting, too late to do any good, "oops, we screwed up the estimate."
Futures markets dictate, or at least heavily influence, cash prices received by actual cattle owners for their production. That is, rather than the supply-and-demand equation of cattle slaughtered and meat sold, a few market manipulators in the bowels of the Merc in Chicago are determining cattle prices. You don't want to get me started on how a few big cattle feeders, owned by packers themselves and their major stockholders, corner the futures market and seesaw it up and down for their own profit and gain.
That's why you have to take cash cattle price quotations with a grain of salt--and unfortunately to the bank, even when the price you received dropped precipitously due to somebody's market manipulations in Chicago.
This is as opposed to trading cattle futures contracts at the Chicago Mercantile Exchange. One side of each contract allegedly owns real existant cattle, while the other side is a speculator who does not. Bringing them together is a futures floor trader at the Merc, who is paid a commission on each contract he trades.
The futures trader does not care whether prices go up or down, north or south--just so they move. He makes his money on the volatility. The wilder the market swings, the more trading and more money he makes. Cattle futures encourage market volatility, just the opposite of the often-quoted saw that they bring stability and liquidity to the market. The claim for futures is that they limit risk, when in reality they create and cause greater risk.
The two major movers of futures markets are breaking news, and government reports on the industry covered. Both have played in to the major drop in cattle futures prices yesterday and today.
The news is the sales of both National Packing Co. and the beef packing division of Smithfield Foods to the Brazilian conglomerate that already owns Swift and Company in the U.S. This will make them the largest meat packer in the U.S. and probably the world. They will be bigger than current number one Tyson Foods and Excel. A favorite futures trader word came into play, saying this news added "uncertainty" to cattle futures markets.
Government reports are a stickier wicket. The most famous are the USDA Cattle-on-Feed Report and USDA's biennial Cattle Inventory Report. These are received by the futures markets as the holy grail, handed down from on high as the unassailable truth of how many cattle exist.
The dirty little secret is that USDA does not go out to a single feedlot pen or a single ranch and actually count the number of cattle that really exist. Their reports are estimates, based on computer models and simulations, that are frequently corrected weeks and months after they have already destroyed market prices--in essence, the government admitting, too late to do any good, "oops, we screwed up the estimate."
Futures markets dictate, or at least heavily influence, cash prices received by actual cattle owners for their production. That is, rather than the supply-and-demand equation of cattle slaughtered and meat sold, a few market manipulators in the bowels of the Merc in Chicago are determining cattle prices. You don't want to get me started on how a few big cattle feeders, owned by packers themselves and their major stockholders, corner the futures market and seesaw it up and down for their own profit and gain.
That's why you have to take cash cattle price quotations with a grain of salt--and unfortunately to the bank, even when the price you received dropped precipitously due to somebody's market manipulations in Chicago.
Tuesday, March 4, 2008
Meat packing: the big keep getting bigger
Meat packing has been a near-monopoly business in the U.S. for several years, and a blockbuster announcement today that the Big Four packers are now the Big Three makes it even worse.
The distant fourth, National Packing of Dodge City and Liberal, Kansas, was purchased by the Brazilian interests who recently bought Swift and Company. This vaults Swift near the top with Tyson Foods as the nation's largest. Excel, the other major player in meat packing, is probably third.
If competition is the mother's milk of free enterprise, the very essence of the supply and demand economy, there is suddenly even less of it now in the meat packing business. This is bad news for America's cattle producers, as there is now one less bidder out there each week at the feedlot pens, looking for cattle to kill. The livestock sector is having trouble already, with bad winter weather, drought and high grain prices spurred by corn diverted to ethanol production.
One less competitor for slaughter cattle cannot be good news. Beef cattle production probably does not lend itself to the factory, market-cornered trend we've seen in poultry and pork. The truth is today that if you want to raise chickens or pigs, you better have a contract in hand to sell them when you're done, before you start. So far, the cattle market is more open than that, and the individual producer still can compete, unlike chicken and hogs, but the days could be numbered.
National Packing is probably too small to be on the radar screen of federal anti-trust regulators, and since they sold to Swift rather than Tyson, will probably skate by. But it bears watching.
The distant fourth, National Packing of Dodge City and Liberal, Kansas, was purchased by the Brazilian interests who recently bought Swift and Company. This vaults Swift near the top with Tyson Foods as the nation's largest. Excel, the other major player in meat packing, is probably third.
If competition is the mother's milk of free enterprise, the very essence of the supply and demand economy, there is suddenly even less of it now in the meat packing business. This is bad news for America's cattle producers, as there is now one less bidder out there each week at the feedlot pens, looking for cattle to kill. The livestock sector is having trouble already, with bad winter weather, drought and high grain prices spurred by corn diverted to ethanol production.
One less competitor for slaughter cattle cannot be good news. Beef cattle production probably does not lend itself to the factory, market-cornered trend we've seen in poultry and pork. The truth is today that if you want to raise chickens or pigs, you better have a contract in hand to sell them when you're done, before you start. So far, the cattle market is more open than that, and the individual producer still can compete, unlike chicken and hogs, but the days could be numbered.
National Packing is probably too small to be on the radar screen of federal anti-trust regulators, and since they sold to Swift rather than Tyson, will probably skate by. But it bears watching.
Monday, March 3, 2008
Markets demand long term view
If you live and die with hour-by-hour watching of the cattle market, or any other commodity for that matter, you'll probably die.
The twists and turns of the market even day-by-day can drive you crazy. For one thing, the market really only matters if you need to trade--whether it be buy or sell. It's fun to value what you already own with today's prices, but until you're ready to buy or sell, it really doesn't mean very much. You become less a visionary and tracker of the long term trends, and more a day trader, when you don't take a more seasonal view.
You don't buy and sell cattle every day, unless you're a professional trader who doesn't actually raise livestock. That's why you need to know the trend for the year, rather what the market did yesterday. That's what separates the professional cattleman from the pure speculator.
You can trade cattle futures on the Chicago Mercantile Exchange and never actually own a single head. But that's really no different from trading any other stock or commodity. You're a trader and not a cattleman. You're not concerned with genetic improvement, improved efficiency or the psychic rewards of ranching.
You're just chasing the buck.
The twists and turns of the market even day-by-day can drive you crazy. For one thing, the market really only matters if you need to trade--whether it be buy or sell. It's fun to value what you already own with today's prices, but until you're ready to buy or sell, it really doesn't mean very much. You become less a visionary and tracker of the long term trends, and more a day trader, when you don't take a more seasonal view.
You don't buy and sell cattle every day, unless you're a professional trader who doesn't actually raise livestock. That's why you need to know the trend for the year, rather what the market did yesterday. That's what separates the professional cattleman from the pure speculator.
You can trade cattle futures on the Chicago Mercantile Exchange and never actually own a single head. But that's really no different from trading any other stock or commodity. You're a trader and not a cattleman. You're not concerned with genetic improvement, improved efficiency or the psychic rewards of ranching.
You're just chasing the buck.
Sunday, March 2, 2008
Agriculture dead last as campaign issue
Once the Iowa caucuses are over, agriculture drops out of sight as a topic of discussion in presidential politics. That's why federal ag policy is the mess that it is. John Q. Public never hears enough intelligent discussion about it to even become mildly interested in agriculture, much less well informed.
What minor attention agriculture receives, it is to pander to one ag segment or another to garner votes, not to make sound policy that makes economic sense. The worst offender is ethanol manufactured from corn, a completely uneconomic solution to America's energy woes (see blogs below). Close in line behind it, at the federal trough, are subsidies for cotton, tobacco and peanuts.
Even worse, food stamps for poor and indigent people are part of the agriculture budget. Many naive people think food stamps are America's heart of compassion, to keep children from going hungry. The truth is, the big force behind constantly higher spending for food stamps are the major food manufacturers and grocery chains, who make big money out of food stamps.
The federal government subsidizes big grocery chains like Kroger, SuperValu and Walmart to a lush degree with the heavy food stamp spending that comes their way. These chains pay fancy money to Washington lobbyists to keep the federal food stamp budget continually going up.
All this is lumped together as "agriculture policy," when in reality it is little more than payoffs to politically well-connected industries, who feed off the federal government through indirect subsidies. It is well known that you carry southern states in a presidential election with tobacco, peanut and cotton subsidies. In a close election, the rural vote makes all the difference. Corn, soybean and other grain subsidies are key in midwestern states in a close election.
This is what passes for "farm policy." Using the taxpayer's money to buy agriculture votes is hardly good economics, and it raises the price of U.S. farm commodities to the point that it hinders badly needed foreign trade. U.S. farmers produce far more food than Americans could ever eat, so selling it overseas is almost mandatory.
If you even have the chance (fat chance of that every happening), ask Hillary Clinton, Barack Obama or John McCain about that. They wouldn't dare tell you the truth you've just read here.
What minor attention agriculture receives, it is to pander to one ag segment or another to garner votes, not to make sound policy that makes economic sense. The worst offender is ethanol manufactured from corn, a completely uneconomic solution to America's energy woes (see blogs below). Close in line behind it, at the federal trough, are subsidies for cotton, tobacco and peanuts.
Even worse, food stamps for poor and indigent people are part of the agriculture budget. Many naive people think food stamps are America's heart of compassion, to keep children from going hungry. The truth is, the big force behind constantly higher spending for food stamps are the major food manufacturers and grocery chains, who make big money out of food stamps.
The federal government subsidizes big grocery chains like Kroger, SuperValu and Walmart to a lush degree with the heavy food stamp spending that comes their way. These chains pay fancy money to Washington lobbyists to keep the federal food stamp budget continually going up.
All this is lumped together as "agriculture policy," when in reality it is little more than payoffs to politically well-connected industries, who feed off the federal government through indirect subsidies. It is well known that you carry southern states in a presidential election with tobacco, peanut and cotton subsidies. In a close election, the rural vote makes all the difference. Corn, soybean and other grain subsidies are key in midwestern states in a close election.
This is what passes for "farm policy." Using the taxpayer's money to buy agriculture votes is hardly good economics, and it raises the price of U.S. farm commodities to the point that it hinders badly needed foreign trade. U.S. farmers produce far more food than Americans could ever eat, so selling it overseas is almost mandatory.
If you even have the chance (fat chance of that every happening), ask Hillary Clinton, Barack Obama or John McCain about that. They wouldn't dare tell you the truth you've just read here.
Saturday, March 1, 2008
Blown badly out of proportion
Veteran pols know the power of "the children." They couch all manner of normally unacceptable government programs in terms of how "but it's for the children" to tug at people's heart strings.
So it is with the record 143 million pound ground beef recall of Hallmark Packing of Chino, California. Since Hallmark is the sixth largest ground beef supplier to USDA's school lunch program, this whole farce (see previous blog below) is tear jerkingly labeled as endangering the health of the nation's school children. This is patently false, as no tainted samples of hamburger have been found or alleged, not a single case of sickness has been found and attributed to the Hallmark meat. Using "the children" for cover, vegetarians, animal rights radicals and union activists are blowing up the Hallmark case all out of proportion.
It's bad enough that the video shot by People for the Ethical Treatment of Animals might well have been staged, rather than shot as a picture of a daily practice at the plant. Now comes word of union trouble at the plant, disputes between labor and management.
Meatpacker unions are notorious for alleging unsafe meat handling practices, any time they need to claw for advantage and an upper hand with management. They put Cattle King clear out of business in Denver a few years ago with spurious charges. And that's far from the only packer driven out of business by union chicanery.
Iowa Sen. Tom Harkin of Iowa, chairman of the U.S. Senate Agriculture Committee, is using the Hallmark case to justify a huge federal incursion into the livestock business, using it to justify a federally-mandated Animal Identification program that will be hugely expensive for both the taxpayers and individual farmers and ranchers, with very few results in return. Harkin is a favorite of Big Labor and its meatpacking unions.
The mass media, union members all, continue to trumpet the Hallmark case. Read those stories with a jaundiced eye, because what you see is not what you get. John Q. Public is being had.
So it is with the record 143 million pound ground beef recall of Hallmark Packing of Chino, California. Since Hallmark is the sixth largest ground beef supplier to USDA's school lunch program, this whole farce (see previous blog below) is tear jerkingly labeled as endangering the health of the nation's school children. This is patently false, as no tainted samples of hamburger have been found or alleged, not a single case of sickness has been found and attributed to the Hallmark meat. Using "the children" for cover, vegetarians, animal rights radicals and union activists are blowing up the Hallmark case all out of proportion.
It's bad enough that the video shot by People for the Ethical Treatment of Animals might well have been staged, rather than shot as a picture of a daily practice at the plant. Now comes word of union trouble at the plant, disputes between labor and management.
Meatpacker unions are notorious for alleging unsafe meat handling practices, any time they need to claw for advantage and an upper hand with management. They put Cattle King clear out of business in Denver a few years ago with spurious charges. And that's far from the only packer driven out of business by union chicanery.
Iowa Sen. Tom Harkin of Iowa, chairman of the U.S. Senate Agriculture Committee, is using the Hallmark case to justify a huge federal incursion into the livestock business, using it to justify a federally-mandated Animal Identification program that will be hugely expensive for both the taxpayers and individual farmers and ranchers, with very few results in return. Harkin is a favorite of Big Labor and its meatpacking unions.
The mass media, union members all, continue to trumpet the Hallmark case. Read those stories with a jaundiced eye, because what you see is not what you get. John Q. Public is being had.
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