Yesterday, I joined Andrew Bell on BNN Bloomberg to discuss the why cattle prices have been skyrocketing and where they could be headed. We also spoke about why orange juice and sugar prices are soaring. Click Here to watch my interview.
Andrew Bell: With inflation pinching wallets, you may not be looking to spend on pricey meat cuts, but according to our next guest, plenty of people are buying the higher-end joins and steaks. We've seen cattle prices, live cattle prices in the United States, the futures, hitting record highs. We're joined by Darin Newsom, Senior Market Analyst at Barchart. It's great to see you, Darin. Thanks very much for coming on the show.
Darin Newsom: I really appreciate you having me on.
Andrew: It's drought, essentially, that's pushing live capital prices up?
Darin: Certainly has played a role, but it kind of counterintuitive, we've had a drought across the US Southern Plains, meaning there's no pasture, there's no wheat pasture for the animals. So, they've been pushed into the feed yard. One would think that that would actually increase our supply of cattle, but as we see on month after month of USDA Cattle on Feed Reports, that just simply isn't the case. Now, we can't really compare it back to last year. It's not really a fair comparison. Those are record numbers, but even going back through history, we're still looking at smaller supplies of cattle.
We have a smaller supply, yet the whole time that, you know, these last number of months, we're seeing demand continue to increase. So, we've got strong demand, tight supplies, certainly not indicative that inflation is slowing the demand down at all, and prices just continue to go higher.
Andrew: You've been looking at so called box meat sales, and you say there's plenty of demand for the pricier cuts. People aren't just relegating themselves to hamburger.
Darin: That's correct. I mean, we've seen the choice market go up over $300. We've got select, which is the hamburgers and so on, going up over $290. What we're seeing here is, these are the highest prices since September 2021, and to me, it's a great economic indicator. All of this talk about, inflation this, and the labor problems that, labor is not a problem. The labor market is not a problem here in the United States.
We can see that by the willingness of consumers to continue to buy this higher priced beef, and they're not backing away from it. Packers continue to receive a lot coming out of the plant, and so they're willing to pay more for cattle going into the plant, to make sure that supply stays steady. As you mentioned, we've seen futures go to new highs, we've seen the cash markets hit new highs. It's just been an incredible time.
Andrew: Yes, we're looking there. Cattle futures up almost 60% in the past five years. I see they plunged early in the pandemic. Was that because the restaurants were all closed down?
Darin: Correct. There was a real supply sketch in there, real demand scare there. Not only was nobody able to go to restaurants, but also packing plants had to shut down, or theoretically, they had to shut down, so nothing was moving. Everything came to a standstill, and like so many markets in that timeframe, just kind of collapsed.
Andrew: For sure. Yes, I remember oil-- I'm sure you remember oil went negative for a while, in theory anyway. The beef engine, that's fascinating. You think box beef is perhaps a decent indicator of economic strength? I've heard about cardboard boxes, for example.
Darin: Yes. There's a lot of these other markets that actually show us a better economic read than what so many folks talk about, and to me, someone who watches the commodities all day long, box beef is about as good as there is. If there isn't strong consumer demand, we're not seeing select, excuse me, choice go up to $300 plus. We're not seeing new all-time highs in the cattle market if demand isn't there. It certainly looks like, yes, supplies may be tightening, but I still think this is a demand-driven market.
Andrew: Orange juice futures are a narrow record. I think that's partly because of woes to climate or disease woes in Florida, but sugar is at its highest in more than a decade.
Darin: Yes, there is a common thread in the softs sector. We're talking about orange juice and sugar and coffee and cocoa and all of these things. It is weather. These markets are weather derivatives at heart. If you want to see what's going on in some of the key growing areas for many of these commodities, we can look at the spreads the way the prices line up in the futures market themselves. It tells us, in this case, weather is the issue. In sugar, it was the Brazilian drought for a number of years, and then all of a sudden, they started getting some rain. So we solved some problems there.
It also helped to push soybeans in 2022 to new highs. For cocoa, similar situation. Orange juice, obviously, as you mentioned, weather in Florida and the greening problem that they have in Florida. Plus, again, weather in Brazil. All of these markets are connected, and they all have to do with weather. It's just interesting the way the softs sector as a whole has been hit, and these markets seem to be taking turns, moving to new all-time highs.
Andrew: Maybe we could put up a five year chart for corn and wheat. You got to be curious now. Have we seen a rally in those prices, because they did come off the boil.
Darin: Yes, they did. They certainly rallied in 2022. That seem to be kind of the culmination of everything for most of these grain markets as well. Then they've backed off since about this time of the year a year ago. Production started to increase around the globe, and that was a key, that we started to see some production coming back in again, a factor of weather. Now we've been a little bit of a downswing. We'll see how long it last.
More Livestock News from Barchart
- Hogs Firming Up on Friday
- Cattle Fading into CoF Report
- Hogs Sit $1.80 Lower for the Week
- Cattle Higher for the Week into Friday
