Sort & Cull

As exciting and glamorous at it may sound (right up there with cyber warriors, Russian oligarchs, and nude Uber drivers), the tedious profession of market analysis and commentary offers few dream jobs for the restless spirit. In short, my job can be long on narrow trading ranges and flat, uninspiring fundamentals.

Think of daily trips to Baskin-Robbins for a single scoop of vanilla.

That's why the new Brazilian meat scandal has absolutely made my week, grabbing tired assumptions of supply and demand by the back of the neck and shaking them like rag dolls. Well, at least theoretically.

However the story develops in the weeks and months (years?) ahead, no one can deny the story was initially worthy of bold headlines. Saddle the world's biggest beef exporter with reports of corrupt inspectors and tainted product. Throw in the fact that when it comes to food health scares, the world's trading stomach turns as queasy as a skinny vegetarian with allergies.

If that ain't major news with real market-moving potential, then President Trump still has a shot at introvert of the year.

Best of all, no one saw it coming. The sordid situation just suddenly flew out of the steamy Amazon like a great market-scrambling "Black Swain."

But will the Brazilian scandal truly have legs? It's one thing for 20 or more meat customers (most noticeably China) to temporarily cancel orders, but quite another for the global meat trade to be significantly rerouted over the long-term.

While only time will tell, I see at least three signs suggesting major players in this mess are clearly worried market trouble and negative implications could endure far into the future.

First of all, damage control by Brazilian governmental officials strikes me as both desperate and comical. Soon after the initial press releases of categorical denial began to look silly and indefensible, spin-doctors tried to sympathetically frame unfortunate events in the manner of El Chapo's disappointed mother. Yes, politicians and trade associations admitted there was some bribery afoot. But only the best kind of bribery, wheels greased in order to speed the delivery of wholesome meat to hungry customers around the world.

Right.

Second, despite loud pleas of innocence and dismissive assessments of overall significance, major processors within Brazil have wasted no time in anticipating an extended period of bearish fallout. For example, JBS almost immediately has halted beef production for three days in 33 of its 36 Brazilian plants. Next week, it will cut production by 35% of capacity at all its units.

Finally, you don't have to be much of a market history student to know the proven, long-lasting power of food safety scares in world trade.

Even the most scientifically oriented society can morph into fear-based (i.e., anti-trade) mob if enough become obsessed with the unknown. This seems especially true when irrational avoidance is facilitated by alternatives.

China's ban on U.S. beef still in place 13 years after the discovery of BSE in Washington State stands as the saddest, ongoing example of such craziness.

(ES)

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