Reconciling the up beat stock market returns of the last several weeks with any sort of economic reality just gets harder and harder. The American consumer is supposed to be looking at things from a positive perspective now and voila' the economy of the USA will be booming within the year. Or not.
The Baltic Dry Index (BDI), a reflection of demand for ships carrying a wide variety of materials and finished product to all ports around the world, is barely tug tugging ahead from its unprecedented lows of 2009. The BDI generally is something of a leading indicator to either rallies or routs, but not so in this current dazzling stock market rally.
Basic agricultural commodities are somewhat mixed, but as a whole generally are not far off their average basket price in 2007 prior to the last huge run up in oil, as reflected in the chart of DBA, an agricultural commodities ETF that reflects a basket of sorts of primary ag related commodities.
For the rancher with hungry bovines to feed, that's good news. We don't wish to see commodities prices jump up along with this crazy market. But then there's that inflation question? Just how will the expected gross inflation from irresponsible government spending and massive debt impact the price of commodities?
Not having the smarts to answer that question myself, I'll avoid it here. There are ample analysts with educated opinions about the direction of basic commodities in a staggering inflationary economy. I'm actually most curious as to why commodities have managed to stay out of the current rally, given that their basic demand is driven by the consumer and of course ethanol producers, whose business in turn is driven by basic consumption.
As I mentioned, for the cattle rancher, it's good news that so far commodities have at least maintained their average back track to 2007 levels, we have those hungry bovines to feed after all. What is really interesting to observe is that COW futures are tracking the bottom of the market, at least to my eyes. In addition to, or instead of, owning actual cows, investors can buy what some call an E-COW. COW is the symbol for an ETF that tracks cattle futures. Wow, take a look at that chart.
COW is even lower than it was in March of 2009 when all markets in general took a nose dive. COW just keeps getting lower and lower, the winner of the how-low-can-you-go Limbo game, but COW looks like the only major Limbo player.
If the US economy is rebounding so nicely, why is COW still playing Limbo? Has the American consumer decided that foregoing some beef for dinner wasn't so hard, and now they've lost their taste for hamburger? After all, the consumer is bringing our economy back. Right? Are American consumers becoming more 'green' oriented? Some of them deciding to do their bit to help global warming by not eating beef from a farting beast?
It looks like maybe 9% of them are perhaps doing just that. After all, we're told the economy is on the road back, folks should have been buying more beef in at least June and July when suddenly the economy of the country started looking rosy. Yet consumer demand for beef has dropped 9% in the last 9 months, per Cattle Max.
If you think this is the bottom for beef, maybe it's time to buy some momma cows for your pastures, or jump out there and buy an E-COW, or how about one of those small feedlots that are headed for bankruptcy and closure as discussed in the article below. After all, "the country has the lowest calf crop since 1999 and fewest cattle on feed since 1999".
“As a result of losing money, we have people in dire straits,” said Paul Hicks, a Fort Worth cattleman who works with feeders. “A lot of them are stuck with a lot of empty pens. A lot of feed yards are for sale —there's a world of feed yards available right now.” BARRY SHLACHTER, FORT WORTH STAR-TELEGRAM
Where is the government bail-out for those small feedlots? How about the Obamanomics gurus start issuing cash-back coupons for folks to buy a nice chuck roast? Oh yeah, they probably want to shrink the number of cattle feedlots cause of all that methane gas, have the common folk become vegetarian, and keep those really nice rib-eyes for those elite White House suppers.
Lightbulb! Maybe the White House would like to have a few hundred elite rib eyes from the herds of British White cattle? British White beef producers should work on that, the White House could literally consume all the beautiful grass fed British White beef produced. And it's fitting, the beef of old royalty on the dinner plate of new American royalty. I like that! Maybe that's a niche British White breeders should pursue.
As a side note, I am not fond of the seemingly nasty environment of feedlots. And my awesome cow, Bountiful, just closes her eyes in dismay at the mere thought of one of her babies ever stepping foot into their muddy pens. But, it is impossible to provide beef to the majority of American consumers without feedlots. Perhaps more people are choosing to buy beef direct from the family farm and that is contributing to the decline in demand for the industrial sort of beef.....but I imagine that is as much a pipe dream as believing the current stock market razzle dazzle of a strong economy just around the corner.