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| With all the problems with clearing houses lately I don't think it would be a huge surprise, but I wonder if meat price will detach from CME prices to a greater extent? I suppose 'basis' would be the obvious mechanism. Packers move contracts up to somewhat profitable levels (or likely just under break even) to keep pigs coming in and then pass that to the grocer and finally consumer. The idea would be to more closely following grain/input prices. I finish pigs, but I'm not involved in sales, though I'm usually told where things are regarding contract pricing and it seems to be just a multiplier of the board price (and the grading matrix).
Seems like with turkey guys they get a feed adjustment as grain prices change and it seems to work. I do not know how those extra dollars are passed through the system to the eventual consumer though. I doubt much of any increase just gets absorbed by the processor. Apparently turkey guys are a little ahead on this game, but I'd like to understand it better - any turkey guys out there?
Naturally, if grocery prices get too high, consumers stop buying and inventories build which usually puts a lot of pressure on price. The gov't could step in and buy which it does anyway, but that will likely prevent the market from eventually working. ie. if $8 corn doesn't work, then end users slow/stop production which lowers demand and eventually $8 becomes something lower. Frankly if this allowed to play out without intervention it might mean a more stable market for everyone (though lower than it is now). | |
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