Have been visiting my favorite unknown, small, near-hidden grocer more often recently. Reason for that is their steaks are both good, a rarity in this modern world, and reasonably priced relative to others. Another reason for doing so is in part to eat beef now, while it remains affordable.
Chart above is of the USDA’s index for beef. That measure is a combination of prices for boxed and hanging beef. No fancy software is necessary to discern the rather obvious trend. The index is flirting with a new 90-week high.
High grain prices of recent times made profits difficult for those feeding steers to ultimately become beef at your grocery stores. Their response to such a development was to feed fewer steers. In the Southwestern U.S., the drought forced a massive liquidation of herds. Cattle there are fed grass which does not grow without rain. Remember, steaks are not produced in factories. That herd liquidation first reduced prices as sales occurred. Second round effect is now in place, rising prices.
USDA is forecasting that U.S. beef production will be down again next year. At the same time, export demand for U.S. beef continues to rise. Those nations not hampered by the failure of Keynesian ideology, such as China, continue their economic growth. Rising incomes from that growth are being used to eat better. Rising global demand combined with downsized U.S. cattle herd should translate into rising beef prices through late 2012. In the years beyond that, beef is likely to simply become too expensive for most budgets.
As a result of the above economics of beef, rising hog prices, and a growing unwillingness on the part of lenders to finance unprofitable U.S. chicken operations, the price surprise of 2012 could be chicken prices. A chicken in every pot at election time in the U.S. next year could easily cost 50% more than today. Agri-Equities of beef, hog/pork, and chicken producers should benefit from these trends.
About Ned W Schmidt CFA
Ned W Schmidt CFA Archive
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