Harrington's Sort & Cull

Blinded by Meat Totality

John Harrington
By  John Harrington , DTN Livestock Analyst
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When the moon completely blocks the sun on Monday, Aug. 21, the several minutes of high-noon darkness promises to be somewhere between awe-inspiring, eerie, and (especially for those beef and pork marketers frantically pumping the brakes) unnervingly ominous.

I don't mean to sound like some pre-scientific kook booking my ticket on the rapture express. Please keep your seat, Mr. Nostradamus.

Besides being too enlightened for such silly talk, venture capitalists turned astrologers just can't let that old end-of-the-world razzle-dazzle get in the way of merchandise that really flies off the shelf (e.g., T-shirts, eye glasses, gag sun tan lotion with negative spf).

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But while the historic eclipse will almost certainly not cause the world to stop spinning on its rusty axis, I will certainly understand if increasingly beleaguered meat producers come away with that impression.

Fed cattle and hog prices have been on a slow but steady doomsday march since mid-July, both losing approximately $8-$9 over 30 days or so. Yet one hardly needs to blame cosmic chaos or the reverse gravity of black holes to explain the late-summer bearishness. In the words of Cassius, Shakespeare's co-conspirator and part-time market analyst: "The fault, dear Brutus, is not in our stars, but in ourselves."

If livestock producers currently find themselves under a dark cloud (and yes, one likely to get much darker through the end of the year), it's because of their own inflated-supply doing. As herd expansion plans culminate at higher and higher levels, the challenge of total meat tonnage (let's not forget ongoing broiler flock expansion as well) is simply overwhelming in terms of price stability.

Barring major downward corrections, in the most recent USDA inventories (Where is fake market news when you need it?), the meat stage appears to be set for record-breaking totals in the third and fourth quarters of 2017. Both quarters should be aggressively funded by increases in beef (up 3%, up 3%), pork (up 2%, up 5%) and chicken (up 2%, up 4%).

Given the numbers of oars currently in the water, I'm guessing total meat production for the last two quarters of 2017 stands to be record large (i.e., 24.77 billion pounds in Jul-Sep, up 1.5%; 25.87 billion pounds in Oct-Dec, up 4.2%). The vigor of domestic demand and foreign demand will be challenged to the max.

Is there any wonder why deferred livestock futures are now cautiously trading steep discounts? Is there any wonder why the late-year market sky already seems to be dimming toward totality?

For more of John's commentary, visit http://feelofthemarket.com/…

(AG)

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Comments

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11/22/2017 | 5:22 AM CST
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blyanc@pgtc.com
8/22/2017 | 6:06 AM CDT
Mr. Harrington, I notice that we still import large amounts of beef from Canada and Mexico. When you consider the low numbers of cattle these two countries receive from the US why shouldn't USDA slow imports until the supply of cattle from US ranchers declines? Also, since repeal of COOL prices of US cattle have decline more than 50%. The beef going to China (according USDA's web site) includes Canada and Mexican beef which can be labeled as US beef.