Welch
There are scenarios and forces at work that are, by any measure, bearish most markets. I am specifically referring to the Federal Reserve and other world central banks that are lifting interest rates at the fastest rates in 40 years to fight inflation.
The central bank’s major tool to lower inflation is by hiking rates. But only with the benefit of hindsight do economists and the rest of the world know that such a policy was successful or not.
But what we do know is that based on history the U.S. Fed generally gets what it wants — which, of course, spawned one of the most famous old sayings in history, namely, “Don’t fight the Fed.”
Thus, with the Fed trying to break the back of inflation, it suggests that buying any market in hopes of catching a money-making bull move is not a wise course of action. Still, even in a period of rising interest rates some markets, if bullish enough, will rise in value.
I have stated time and again that there are only two ag markets I am comfortable trading on the long side of the ledger.
One of those markets is cattle and this week the U.S. Department of Agriculture released a Cattle on Feed report that was flat-out bullish and sets the stage for much higher prices down the road.
The Cattle on Feed report was not a surprise to me, but I was more than happy with the data as announced. So were many others.
From Agriculture.com with a headline that reads, “Expect tighter supply of cattle in 2023, analyst says,” the first paragraph in the article reads as follows: “Though cattle marketing numbers were heavier than expected late summer and fall, expect that beef production and the number of cattle marketed will be lower in the year ahead.
“Why? The quick answer: higher input costs and drought conditions in key cattle-producing states will mean less inventory in the months ahead.”
And I totally agree with that assessment of the cattle market moving forward. In fact, I made a similar forecast not long ago.
My weekly column for this newspaper a few weeks ago was entitled, “A shortage of beef and pork in 2023.”
Based on this week’s Cattle on Feed report that was bullish, here are a few of my comments from back then: “The odds are high that the cattle market is on the verge of moving north in a big way. As I stated in this column at the beginning of the year, the upside potential remains to be seen, but with inflation running at its highest level in three decades and the entire globe in the early stages of a commodity supercycle, a reasonable upside target for both cattle cash and futures is $160 to $170.
“Of course, that is my opinion and I could be wrong. It would not be the first time I was wrong about a forecast, as many will attest — but the next big move for the cattle market will be higher and not lower.”
And here are the final few sentences from that column: “As long as the economy is creating jobs and inflationary pressures persist there will be upward pressure on livestock prices.
“In fact, in the year ahead, a shortage of red meat, beef and pork will be a headline grabber. Yes, a shortage of beef and pork appears likely.”
Keep in mind, however, that markets do not move in a straight line. Markets rally and then decline. Markets can flash more head fakes than seen during a basketball game.
Also keep in mind the central banks of the world are lifting interest rates at a breakneck speed which is intended to fight inflation found anywhere even with meat prices. When the Fed hikes rates, bull markets anywhere are as scarce as hen’s teeth.
In other words, yes the data from the last Cattle on Feed report was quite bullish. But is the data bullish enough to shrug off higher interest rates coupled with slower economic growth and the reluctance of the consumer to pay up for high priced meat?
Only time will tell.
Agriculture.com also stated the following: “Ultimately, shortfalls of heifers and a lack of financial incentive to build the herd leaves a trend of lower supplies. Until input (feed) prices decline, expect this trend to continue. Tight inventory will keep live cattle prices supported.
“However, unknown is the consumer’s willingness to pay higher beef prices in an inflationary environment. Our best guess is maybe, though probably not. Demand worldwide in 2023 is expected to slow according to the most recent projections from USDA, as economic slowdowns continue.”
Nonetheless, I am quite bullish cattle and now believe cattle, cash and futures will rise to $180 to $185 before 2024.
I will trade cattle on the long side of the ledger and only one other ag market. Only one other.
Copyright © 2022 agrinews-pubs.com. All rights reserved. Published in La Salle, Illinois, USA, by Shaw Media.
Copyright © 2022 agrinews-pubs.com. All rights reserved. Published in La Salle, Illinois, USA, by Shaw Media.
Commodity Insight: Cattle supplies to tighten moving forward – Agri-News
