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Cattle Close at Highest Value for Rally
The cash cattle parade continued today with Colorado moving numbers at $159. This extended yesterday’s $157 to $158 trade. August futures broke their $153 resistance and closed at the highest value yet for this rally.
There are a few things about this rally which are confusing. While we can all agree that supplies are smaller than they should be, beef production averaging 6% lower than last year over the past four weeks, the big surprise is the lack of pushback from the end of the production chain. We are very interested in seeing how the June beef demand looks like.
Beef demand is not just the amount of beef consumed but also the price it is consumed at. While the amount of beef offered to end users (production – net exports) was down, the price response was unusually large. Are consumers actually accepting these higher prices? Are they even asking for more at these prices? That is what you would have to assume just looking at these numbers at face value. However, we take a few additional steps beyond the meat industry’s focus.
The question we have to ask is, “Based on what we know about consumer financial health, are these apparent increases in beef demand appropriate?” We will jump at the chance to answer that question when the reports become available. There is no doubt that the economy, and consumer financial health, has improved off the recession lows. It will likely to continue to improve. While we have heard a lot of talk about consumer backlash, we just have not seen it…yet. For now, producers can enjoy these unheardof prices. This is your $8 corn. It won’t last forever. We are now in the pure psychology phase of this rally. We held off from selling through June and will continue that mindset until the market lets us know it is ready for a change.