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| Being involved in the demand side (contract piggies) of this market as well as the supply side makes me think about possible things that could happen given this market.
1st an orderly rise in prices tends to cut supply by folks not farrowing, buying calves etc. but this all takes some time. However, in this situation we have 'blasted' off much quicker than the supply side can react making for more tough situations that usual. So, I wonder if a huge sow slaughter and general exodus from livestock won't hammer the grains all at once in a similar fashion to how grains hammered them? there really isn't a way to force livestock prices higher, so supply cuts are more or less what we have left. When supply picks up again in the future, I do think the price will stay at higher levels though.
2nd livestock won't matter because of ethanol mandates, so ethanol is going to be made one way or another and the folks backing ethanol have deeper pockets (some of those pockets are ours) than livestock producers. Therefore the price will continue to rise until we make enough ethanol.
3rd 1 and 2 don't matter because investment money is pouring into commodity funds and they want to buy. The 401K and IRA money being taken out of many folks' checks has to find a home and they will continue to buy until investors 'feel' like they need to park the money somewhere else. Unlike the tech bubble where people were investing in companies that were no more than 2 guys in a room with an idea, now there is a physical commodity that where there is demand from multiple sources and somewhat limited supply. So, prices will find a new plateau just because the investor money is probably here to stay.
The downside to #3 is that there is a point (unless you like a $12 value meal) that the prices will just be too high to be sustained. The investor money isn't going away, so basis will have to adjust to make things work again. The cbot/cme will become detached from the 'real' world (or at least what we think of as real) and that could lead to further problems with price discovery.
What do you think?
Pat
PS: I still have corn and beans to sell - not much, but enough to play with. This certainly has been an interesting ride so far. | |
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What will drive this market??
