Death comes to us all. Life's but a walking shadow | White Shadow did a pretty fair job of summarizing the cattle situation. But one topic he didn't touch on and interests me is the poor job that commodity futures does to send the right price signals soon enough to start the adjustment before everything gets so out of whack.
It took years for cattle and feeder prices to respond to a trend that was years in the making. All you had to do was look at the returns for cattle farming and the demography of the cow farmers to reliably predict what was going to happen. I mean it wasn't like returns were marginal, they were terrible. Ten years ago when I quit cows and went to buying stocker cattle I could easily figure out that I was making more money backgrounding than the calf producer was for a lot less work and risk. Five, six, seven years ago I made the calculation that calf prices needed to be at least $2 to make any money on calves. (and I can tell you, I'm not some kind of genius.) And for all this time I have been wondering when prices were going to finally catch up. A couple of years ago I was beginning to seriously doubt myself and then finally we saw prices start to climb.
My question is, if the futures market is so all-fired good at stimulating and rationing supply, balancing supply and demand why does it seem to fail so frequently. This same question is pertinent to grain farming right at the moment. I know that corn is just about down to the long term cost of production if not below it. ( I know that one year of low prices isn't going to make too much difference.)
My own opinion is that the futures business is far too dominated by the traders and money men obsessed with chart following (not that charting is bad) such that the longer term fundamentals gets squashed by the ferocity of the short term moves.
Well have a good weekend, fellows. |
Cattle making history and is in "Catch 22"......................
