The concept of "short-bought" has long been a standard entry in the cattle lexicon, right up there with "fleshy," "green" and "typey."
If commodity prices are in a steep downtrend, it can describe a coveted position regarding physical inventory. But if values are screaming higher, "short-bought" may seem like an absolute curse.
Think of Bedouins taking their first steps across the Arabian Desert with leaky canteens.
Beef processors and retailers once thought they knew all about the short-bought game. But the extraordinary summer of 2014 has taken the procurement strategy/awkward necessity to a whole new and frightening level.
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For packers, the cost of being caught short-bought this week was no less than $8-$10 per cwt. That's a pretty good toll for the dog days of summer.
Seriously, these are incredible times of previously unthinkable tight fed and non-fed supplies. I suppose you could be smug and say that anyone caught off guard simply hasn't been paying attention to the relentless herd liquidation over the last several decades.
While there's some truth in that, the extreme short-bought sting of midsummer can be at least partially explained by the truly surprising reduction in second quarter cattle slaughter.
Given the substantial placement activity documented in January and February (i.e., combined totaling 3.79 million year, 11% greater than the same period in 2013), I can understand how some end-users of cattle/beef thought "second quarter numbers should permit to regain some buffer on inventory, to at least momentarily mend our short-bought ways."
But when fed slaughter in June actually turned out to be 2% smaller than the previous year (with the monthly cow kill off by a whopping 15%), the best-laid plans of inventory conservation went flying out the window.
Buyers of cattle and beef now find themselves closer to the knife than they ever thought possible without cutting off a nose or ear. Furthermore, new on-feed data released this afternoon suggests that fed offerings through the end of the third quarter and into the fourth will only get tighter.
For more of John's commentary, visit http://feelofthemarket.com/…
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