kenny thomas
Well-known member
For those that thought the market would stay great: from agcenter.com
CONNECTING THE DOTS
What do the following events have to do with the crash occurring in the cattle markets?
•The report of Greece pulling out of the EU.
•The possibility the EU may raise interest rates for the second time in as many months.
•The dramatic rise of the dollar.
•The rise in the U.S. unemployment rate.
•The floods in the midwest.
•Upcoming Memorial Day.
•The plunge of oil, silver and gold.
The answer is a lot. The withdrawal of Greece from the EU might likely cause a default in Greek bonds that are mostly held by German and French banks. The financial health of those banks would be brought into question with investors choosing to a flight from the Euro to the safety of the Dollar. The EU would then have to raise interest rates to attract new money causing the value of the dollar to rise. Part of the recent rise in cattle prices has been a result of a extremely weak dollar. Our weak dollar has allow our beef to be priced the same as beef in South America which quickly pushes buyers our direction. Beef exports, once barely 10% of our production has risen to almost a third in recent weeks.
On the domestic front, a reversal in the employment rate is bad news for all consumer spending. Already pressured by high gasoline and food prices, the consumer household budget is showing signs of stress. The cool and wet spring in much of the north has slowed the cookout season. This is exacerbated by grocery stores who have lost margins in beef and are not coming forward to sponsor beef promotions for Memorial day. Finally, the flight to commodities, seen by many as a necessary protection against inflation, is now being abandoned as a financial strategy causing many investors to pull the plug and liquidate long commodity positions.
According to the usual plan witnessed thousands of times, the markets moved higher based on the greater sucker theory. The frenzy took the commodity markets too high and now the stair-step up is the elevator down. Investors are abandoning commodities as evidence surfaces that inflation may not be the risk it was considered a month ago. Investors are now withdrawing money from the ETFs and the ETF managers are selling the futures to fund the withdrawals. Speculators threatened by increasing margins and looming losses, are getting out of all commodities.
Cattle prices have dropped $10 cwt. and more may be on the way. This is not all bad. Beef had moved too high and was due an adjustment but losing money is never fun. Breakevens have been touched and additional declines in cash prices for cattle will be out of the cattle feeders hide. The falling box prices may attract new buying interest. The crashing corn prices will help mitigate the damages. Rains in the southwest, accompanied by an elimination of the ethanol subsidy which was introduced in Congress this week, would go a long way to restore some hope for rebuilding a sustainable model for the beef industry.
CONNECTING THE DOTS
What do the following events have to do with the crash occurring in the cattle markets?
•The report of Greece pulling out of the EU.
•The possibility the EU may raise interest rates for the second time in as many months.
•The dramatic rise of the dollar.
•The rise in the U.S. unemployment rate.
•The floods in the midwest.
•Upcoming Memorial Day.
•The plunge of oil, silver and gold.
The answer is a lot. The withdrawal of Greece from the EU might likely cause a default in Greek bonds that are mostly held by German and French banks. The financial health of those banks would be brought into question with investors choosing to a flight from the Euro to the safety of the Dollar. The EU would then have to raise interest rates to attract new money causing the value of the dollar to rise. Part of the recent rise in cattle prices has been a result of a extremely weak dollar. Our weak dollar has allow our beef to be priced the same as beef in South America which quickly pushes buyers our direction. Beef exports, once barely 10% of our production has risen to almost a third in recent weeks.
On the domestic front, a reversal in the employment rate is bad news for all consumer spending. Already pressured by high gasoline and food prices, the consumer household budget is showing signs of stress. The cool and wet spring in much of the north has slowed the cookout season. This is exacerbated by grocery stores who have lost margins in beef and are not coming forward to sponsor beef promotions for Memorial day. Finally, the flight to commodities, seen by many as a necessary protection against inflation, is now being abandoned as a financial strategy causing many investors to pull the plug and liquidate long commodity positions.
According to the usual plan witnessed thousands of times, the markets moved higher based on the greater sucker theory. The frenzy took the commodity markets too high and now the stair-step up is the elevator down. Investors are abandoning commodities as evidence surfaces that inflation may not be the risk it was considered a month ago. Investors are now withdrawing money from the ETFs and the ETF managers are selling the futures to fund the withdrawals. Speculators threatened by increasing margins and looming losses, are getting out of all commodities.
Cattle prices have dropped $10 cwt. and more may be on the way. This is not all bad. Beef had moved too high and was due an adjustment but losing money is never fun. Breakevens have been touched and additional declines in cash prices for cattle will be out of the cattle feeders hide. The falling box prices may attract new buying interest. The crashing corn prices will help mitigate the damages. Rains in the southwest, accompanied by an elimination of the ethanol subsidy which was introduced in Congress this week, would go a long way to restore some hope for rebuilding a sustainable model for the beef industry.
