Haven't visited the cow report for like a month, but this might be new...A double weekly-blurb?
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"SHAPE OF THE MARKET
The day of only looking to fundamentals for the markets, for price guidance, is long gone. Technical traders have always been around relying on math and charts to provide liquidity and price theories for the market. The arrival of macro-investors and momentum traders is a more recent influence on futures prices. The macro-investors look at the big picture, including government policies, trade policies, and monetary policy. The momentum traders are only looking a micro-moves and sometimes in micro-seconds.
The drift of cattle futures this past week was lower as some larger traders back off ideas that inflation will sharply raise the price of all commodities and government spending will propel the buying binge that is destined to push prices higher. Those traders exited long positions based on statements by Fed Chairman Powell and Treasury Secretary Yellen that inflationary pressures will be short lived and fall to the targeted 2% level in the near future.
This view ignores the more obvious fundamental facts of the cattle numbers and market forces. The national cattle herd is in liquidation mode and recent data supports this notion. The numbers for the second quarter of the year are now in and cow slaughter was 17% over last year and 12% over a pre-Covid 2019. Some of the drought areas liquidated cows at a 25% higher rate. High feed costs and low cattle prices are driving the liquidation. Declining milk prices has now included larger culling in the dairy herd.
Generous rains in the high plains has provided ideal grazing conditions for replacement cattle. Feeder futures prices have also encourage yearling owners to hold on to the current inventory for better prices down the line. The result has been a string of declining placement months resulting in lower cattle on feed numbers that will eventually be inadequate to service the healthy demand for beef.
Continuing ASF problems with the pig population in China will assure a base demand for our beef. Bottlenecks in ocean freight and high cost will improve and, as buyers watch the decline in our box prices, there will be a entry point for renewed interest from our export partners. The export markets will remain an important component for price support for our beef industry.
Domestic demand for goods and services, including beef, will continue strong as temporary government benefit packages turn into more long term government hand outs to the lower income population. The price levels at each transfer point along the beef chain will slowly return to a price level connected by supply/demand signals. Those price levels can reasonable be expected to rise above current levels that are unsustainable without herd size destruction.
THE STATE POWER TO REGULATE
Any cattle producer knows the care of the animals is critical and fundamental to production success. Animals that are well cared for are the ones that deliver healthy high-quality beef. Balanced feed and mineral requirements along with good clean water are the basics for good health and nutrition – just like humans. Identification of physical impairments like sickness can be remedied with constant supervision and treatment.
Now we are told that the government needs to regulate how cattle are raised and harvested. In Oregon, Petition 13 would make things like any injury to an animal arising from a rodeo a crime, it would force livestock to live to a certain age (defined by the initiative) before they can be processed, and it would redefine certain animal health and animal husbandry practices such as artificial insemination as sexual abuse.
California wants to require the sale of meat products to conform to the State’s animal housing standards. This does not only pertain to animals raised in California but to any meat consumed from animals produced and harvested in other States. San Francisco goes a step further by requiring a passport for each animal showing the antibiotics received during their lifetime. Similar proposals have been introduced in Colorado and can be expected soon in other states across the nation.
The regulatory initiatives are the product of people who have little to no understanding of how meat is produced and are paraded to the public as efforts to produce meat more humanely and make beef safer. The burden of responding to these legal challenges will rest with the meat industry. The risk of treating this matter too lightly or responding too quickly without adequate thought, is doing nothing or something wrongheaded will raise the economic cost of producing beef beyond the consumers ability to pay for it.
Any issue that captures the imagination of the consumer must find an adequate response from the beef industry. Disregarding irrationally proposed legislation is a mistake. Each concern must be addressed with the facts that are valid and substantiated by science and expert testimony. The case for meat protein has been made for thousands of years and will continue if the interest and concerns of the consumer are addressed. The test is not what the beef producers know but what the consumers believe. The industry wants a regulatory environment that assures a healthy product delivered to the consumers plate and not legislative efforts intended to diminish the role of meat in the diet."
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As I glance at the Oct LE contract, I think, "Man, 129.x seems rather high."
But based on what I have read here, especially in the bolded bits, there seem to be indications that live beef can continue higher.
