I think all marketing economist have, at some point, been told the saying that nothing cures high prices like high prices. I attempted a quick search for whom to attribute this line to with no answer (FYI: the search terms "cure", "high", "prices", and "quote" will fill your results with stock market quotes for the Direxion Daily Healthcare Bull 3X Exchange Traded Fund). Many might argue that live and feeder cattle futures, and more recently cash feds and feeders, have been "cured". The catalyst, of course, was the sanctions imposed by Russia late on Wednesday, August 6, 2014. Given that cattle markets remain at levels that are outside the norms of our data, it is no surprise that a news event such as this will be received in such a negative fashion. Prior to this, a sporadic three- to four-day sell-off in early July seemed to have provided a "cure" but that was short lived and most futures contracts recovered over the course of the next two weeks with very minimal damage to cash prices experienced. Will a resurgence like this occur again?
I will refrain from restating what has already been thoroughly covered (and with respect to many of the articles I read from both livestock and mass media outlets, for the most part, accurately covered!). However, I feel compelled to provide some perspective and commentary for In the Cattle Markets. In no disrespect to those who use it, but technical analysis is not my strong point since I tend to veer away from those beliefs. However, clear levels of support can bee seen from most all live and feeder cattle futures contracts (there are slight variations for the many different contract expiration months available). This is supported, pun intended, by the fundamental factors currently in place in the beef cattle production system - largely centered on reduced supplies and strong demand - all of which have been covered at length in previous In the Cattle Markets writings.
I will reinforce that of the United States' annual beef production approximately 10 percent is consumed in the export market. This is in contrast to pork and poultry exports, which are about 22 and 19 percent of annual domestic production in recent years, respectively. Granted, even for beef this is no small amount with 2.59 billion pounds exported in 2013, 2.62 billion projected for export in 2014, and 2.53 billion pounds forecasted for export in 2015 (according to the August World Agricultural Supply and Demand Estimates report). However, with respect to U.S. beef, pork, and broiler exports to Russia, the significance has fallen in recent years. For the five-year period from 2009 to 2013, 3.1 percent, 3.9 percent, and 11.4 percent of total U.S. beef, pork, and broiler exports landed in Russia.
So, will a second coming - or third, or fourth, or . . . I have lost count - of record cattle prices occur? Given the strength in the domestic market and since the importance of Russian meat imports has lost traction in recent years the clear "in the vacuum" fundamental answer is yes. In the short time since Thursday of last week (August 14), it appears that this is happening. Unfortunately, nothing operates in a vacuum in today's marketplace. So much influence from outside sources spills over into other sectors. Further, the high price levels continue to have cash market participants, futures traders, analyst, and so many random by-standers looking for the bears mingled in amongst the bulls. These two factors combined remove the forcefulness from the fundamental "yes".