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Livestock comes to life

Agriculture.com Staff 04/25/2008 @ 2:01pm

After a sharp drop in prices during the first quarter, livestock cash and futures prices have come to life with strong advances.

Some futures contracts have made up for all of the ground lost the previous three months. What is behind the drive? Oversold conditions are a thought. It is likely, however, due to ideas of strong export activity tied to a weak U.S. dollar and mounting financial losses by producers.

If world economic conditions are contributing to rallies in commodity prices, it only stands to reason that livestock prices will also move higher. The problem facing livestock over the last six months is that three years of profits allowed for expansion, and a supply overload. However, rising production costs coupled with a drop in livestock value, will lead to herd contraction. There is still plenty of inventory that the market needs to work through near term, but there is a growing optimism for higher prices.

This sentiment is echoed in the deferred cattle and hog futures, which are trading at historically high levels for the first quarter and beyond for 2009. The futures market is already suggesting a supply contraction. We believe this is the correct assessment. There is little economic argument to indicate that meat prices will stay suppressed while other agriculture commodity prices are rising to historically high levels. Livestock will enjoy the benefits of a bull market, but it will take a few months to work through extra inventory before the fruits of sharply higher cash prices can be experienced.

If you have questions or comments, contact Bryan Doherty at Top Farmer at 1-800-TOP-FARM ext. 129.

After a sharp drop in prices during the first quarter, livestock cash and futures prices have come to life with strong advances.

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