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Where’s The Beef? A Potential Global Economic Freeze Around The Corner…
There’s an avalanche of bad economic news coming out of different
parts of the world. In Asia, China is cooling off due to tightening
policies put in place by the Chinese government to fight rampant
inflation.
Over here in Europe, government officials and monetary authorities
are eagerly in search for a solution for the indebted countries, with
Greece only a few weeks away from a total collapse. Such an event could
trigger an economic armageddom in the EU, with contagion effects in
every possible corner of Europe.
And as of late, the US economy is starting to wobble. The most recent
GDP figures (1.8%) came in below expectations (2%), the housing market
is about to ‘double dip’ and consumers are throwing in their towels.
Via AP:
NEW YORK (AP) — Americans are losing faith that the economy will keep improving, according to a monthly survey.
The Conference Board’s Consumer Confidence Index fell to a six-month
low of 60.8 from a revised 66 in April, a sign of the toll that high gas
prices, a choppy job outlook and a moribund housing market are taking
on people’s psyches. Economists had expected an increase to 67.
“Consumers are considerably more apprehensive about future business
and labor market conditions as well as their income prospects,” said
Lynn Franco, director of The Conference Board Consumer Research Center.
She said fears of inflation that had eased in April picked up again in
May.
The index, released Tuesday, is still far from the reading of 90 that
indicates a healthy economy. It hasn’t approached that level since the
recession began in December 2007.
The results paint a different picture than earlier this year, when
many hoped the economic recovery was gaining steam. In February,
consumer confidence hit a three-year high. But since then, consumers
have started paying more for food and gasoline and are seeing a “double
dip” in the housing market.
… and so stagflation enters the US!
It seems that a global economic freeze is just around the corner.
Commodities which are extremely sensitive towards consumer demand
have been lagging. While copper prices are in a ‘muddle through’ phase,
demand for high-end products like beef is falling, which translates into
sharp price declines for Live Cattle entering Q2 2011. This spells even
more ‘doom & gloom’ ahead for the economy as cutting back on
‘luxury’ foods means consumers in a saving mode again.
Meanwhile, stocks are zooming higher, as can be seen on the chart below.
We are suspicious of the current evolution of the stock market. The
fundamentals are breaking down everywhere. This will slip into company
results in the coming quarter(s), probably sooner than later.
If Live Cattle prices can be any guide, better fasten those seatbelts, as companies could start to send out Q2 profit warnings as soon as next week!
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If the ranchers are selling off their herds, because of the above, doesn't that mean that supply is drying up, with a consequent effect on prices? Ergo, good time to go long?
It takes time to rebuild a herd, so yes.
Maybe a freeze is good since Big Al Gore (in partnership with Goldman sachs) has been pushing Global warming and carbon credits all over the globe.
Bad weather is impacting cattle prices as feed is becoming too expensive and droughts/floods are putting more beefs into the slaughterhouses.
Let's look to see if crude can reach/re-test its April highs ...
Weather, heh.
Feed lots use corn.
Yep. Last time I checked corn was weather dependent. Even us dumb hicks know Rain is a Good Thang.
My daddy spent his life lookin' up at the sky
He'd cuss, kick the dust, sayin' son it's way too dry
It clouds up in the city, the weather man complains
But where I come from, rain is a good thing
Rain makes corn, corn makes the whiskey
Whiskey makes my baby feel a little frisky
Back roads are boggin' up, my buddies pile up in my truck
We hunt our honeys down, we take 'em into town
Start washin' all our worries down the drain
Rain is a good thing
Which states are famous for producing corn?
I don't remember Texas being in that category.
The loves them some ethanol subsidies though.
BTW I miss my $4.00lb tbones.
I don't follow the cattle market, but being in Texas, here's my anecdotal evidence of what a few ranchers I know are doing:
Drought conditions and wild fires result in less hay being available. High commodity prices drive up fuel cost and make corn feeding (finishing cows for market) more expensive. Thus, feeding cows is expensive, and people are short on cash. It makes sense to sell cows, take profits and reduce herd numbers. In this bad economy, a lot of people will be happy to get money rather than spend it.
So they are dumping cattle on the market, NOW, creating an 'oversupply' of beef for sale, driving the price lower. And when the sales subside, what will happen to the price of beef when fewer cattle are available and people still want beef. Oops I forgot, they will switch to SPAM...the old substitution effect.
LOL. There's nothing quite like a good steak. Even vegans will break over a good tenderloin. Demand for beef will continue. Even if poverty reduces people to eating beans for protein - it will be b/c beef prices remain very high. (Ask those that grew up in Mexico 40+ years ago.)
IMO, you're right about the direction. Question is timing. The Texas drought is still raging. But at some point, supply will drop too low or rain will come and hay will grow. And ranchers will be buying cows instead of selling. And consumers will weep when they see how much it costs to eat a steak.
Cattle price drop is probably a function of the drought in Texas. Don't get too excited, but let's ask Hillary. She made a gazillion dollars off cattle futures, and still knows jack shit about cattle. Can you say BRIBE?
Not to mention herd liquidation due to feed prices. Alfalfa here in Nevada is being shipped to China.
I think you need to read Herbert Hoover's 3 volume memoir to get a flavour for how today and tomorrow's events could unfold. As the old saying goes, history tends to repeat itself. Many of the events of today have a corollary in the events leading up to the Great War, the Roaring Twenties, and the Dirty Thirties with the Great Depression.
Hoover was a key player during all these events. He became President after being Commerce Secretary. Prior to being Commerce Secretary, He headed the Belgian Relief during the Great War. He was a self made man who being a successful mining engineer met most of the "players" in Europe. That led to his role in starting/operating the Belgian Relief program.
Hoover's memoirs total about 1500 pages. They are a very good read.
http://www.ecommcode.com/hoover/ebooks/browse.cfm
The not STATE APPROVED reading in the USA.
Personally I wouldn't mind if Greece collapsed, followed by others and takes down the EU. That's just one block of many they have planed....like US, Canada and Mexico. It would never work anyhow, they'd try to just work around Russia and China like they aren't there. We're just part of a huge screwed up global gobble plan that clearly isn't working and imo has been speed up because of the internet. Even though it's not working they keep pressing the issue and forging ahead, leaving one broken piece after another in it's wake with no stability whatsoever in reach of the end goal.
No hamburger helper here!
And governments have put a lot of grazing land off limits.
Makes you wonder if our government likes managing scarcity so much, they'll create scarcity if they have to.