CME: Cattle inventory data shakes live, feeder markets
CME Group | Updated: July 24, 2012
Live cattle futures were modestly higher on Monday as the latest USDA survey data pointed to dramatic reductions in both the number of cattle expected to come to market in the next few months (feeder supply) as well as the number of beef cows that form the base for future production. Feeder cattle futures, on the other hand, continued to drift lower as an inflationary feed outlook remains a negative for the complex. The supply of feeder cattle outside of feedlots (a measure of “pipeline supplies’) was 37.5 million head as of July 1. This represents a 1.3 million head or 3.4% decline from the same period a year ago. The chart to the right outlines the change in feeder cattle supply numbers for the July inventory count since 1996 and the data is downright depressing. It shows an industry mired in a significant contraction, with feeder supply numbers increasing modestly in only three of the last 18 years. Feeder supplies have been declining steadily since 2007, with supplies down by a little over 1 million head last July and then down another 1.3 million head this year.
The latest cattle inventory data appeared to confirm that the feedlot sector is undergoing significant structural changes. A number of analysts, particularly those at the Livestock Marketing Information Center, have pointed out that the monthly feedlot inventory data likely overstates the number of cattle on feed. As some operations close while others expand to become profitable, this has skewed the sample size and it has given the appearance that there are more cattle on feed this year compared to last. The semi—annual survey gets around this issue since it polls all feedlot operations and not just those with a capacity of +1000 head. The cattle inventory data pegged that total cattle on feed inventory as of July 1 at 12.3 million head, only 0.8% higher than a year ago. This is almost 2% points lower than what the regular monthly feedlot survey indicated for July, a big difference which should put US feedlot supplies in better context.
The current drought conditions and lack of pastures will likely further exacerbate the liquidation of the US beef cow herd and reduce future calf crops. The USDA crop progress report published on Monday afternoon indicated that 26% of US pastures and ranges are now in very poor state, about 8 points higher than the same period a year ago. Another 29% of pastures and ranges are in poor state. Some states, such as Missouri, show 74% of pastures in very poor state, a situation that will most likely force many producers to sell. High corn prices have made a difficult situation untenable but significantly reducing potential future profits.
March 2013 feeder futures were trading at around $164/cwt in mid June but have declined to the mid to high 140s currently. With high feed costs, poor pastures and lower out front prices for calves, the incentive will be to once again liquidate beef cows. Despite the shrinking calf crop, US beef producers have been able to sustain, and even increase, beef production since the 1980s. But as productivity gains hit an inflection point and calf crop declines, forecasts are for steady reduction in beef output.
Statistics: Posted by yoda — Tue Jul 24, 2012 12:30 pm
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Ben Davies – The Gold & Silver Liquidation is Over
With continued uncertainty in markets around the world, today Ben Davies, CEO of Hinde Capital wrote the following piece exclusively for King World News. Davies believes the gold and silver liquidation is over: “I humbly believe the seller is done. For one week there has been several but mainly one entity selling Comex gold futures, as well as some physical to liquidate on the open and closes. This suggest to us it was a CTA commodity type fund. They use volume areas of the day to transact.”
“The sell-off in gold is reminiscent of the 2008 deleveraging process but it is more similar in dynamics to 2012 when a notable fund manager had to sell his gold/ ETF holdings. There were buyers of course, seller and buyer volumes must match. But the need to sell overwhelmed the need to buy.
When you have redemptions time is against you to liquidate, so it becomes a case of sell at any price as time becomes finite. Gold buyers picked up some bargains then and they will now.
Before FOMC minutes two nights ago the seller was back at the close. And then the FOMC minutes changed the dynamic of market with the mention by some members that QE would be back if they saw renewed economic weakness. This is the association for us all of why the market stopped going down but in truth the seller was done.
Like the December experience, once the seller is done, the market will snap back. We run intraday correlations just to observe if markets are starting to fibrillate against each other. We could see that risk assets were diverging and SPX was no longer moving with a 1.0 correlation with gold and silver. We took this as a positive sign that the precious metals were decoupling from risk assets.
The seller was being soaked up by multiple buyers. But all week we saw no significant Asian buying until two nights ago when the market went straight up yesterday on the open of the Asian morning.
We run a myriad of indicators to assess trends and where we are in trend. We also use 5 indicators for sentiment and created a weighted index – one of the indicators has never been this low EVER in 12 years — a level I had never seen.
Based on even past but not quite as bearish readings the next 3 months have been some of the highest returns in gold market of the magnitude of 15-20%. So we can potentially expect an even greater magnitude. In all currencies but particularly in sterling terms I particularly would like to be long gold now.
We are currently writing a report on the UK that demonstrates the fiscal position will soon not be tolerated by the markets. A fiscal crisis could spell a currency crisis. People are walking EYES WIDE SHUT in this country. Spain is irretrievable and the exposure of UK banks to Europe is still too high.
We are surprised there is not more widespread withdrawal of money from banks in Europe as, after all, money in circulation is but a small percentage of demand deposits – so availability of physical money is a real issue should depositors rationally choose to withdraw money and place under the mattress.
In gold, in USD, we need to see gold create value above 1600 to 25 for a few weeks and then we will continue to migrate on a bullish trend higher. There is an ever-present systemic risk growing in Europe, plus severe doubts about JPM to contain their issues – so a coordinated effort by central banks to backstop the global economy draws nearer.
This eventuality would see gold trade much higher than the low 1600s in the next few weeks. Any fund manager worth his salt knows the first loss number presented by JPM is not the last but what will final tally be and what risk to the financial system? By observing credit markets and positioning we can see it is not pretty. Others are taking the other side of this risk. If it stinks, it can get really foul. Well, it really stinks.
I would add that gold volatility across volatility term structure has risen – I suspect there are short gamma positions in the gold market that in this scenario act like a short position on gold. If we look at other markets – credit indices and equity volatility — we can see there is risk of higher volatility. This will drive up gold volatility and heighten positioning risk in market.”
Statistics: Posted by DIGGER DAN — Fri May 18, 2012 11:32 pm
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Eric Sprott – Governments Frightened of Panic Liquidation Event
billionaire Eric Sprott told King World News that governments are desperately trying to avoid a “Liquidation Event.” Sprott, who is Chairman of Sprott Asset Management, also warned the the market is liquidating, “irrespective of whether the powers that be want it or not.” Here is what Sprott had to say about the unfolding crisis: “Something has to be done because it’s totally out of control these days. I mean you can’t have bank runs (like we’re seeing). The one thing the powers that be, the central banks and the governments, have tried to do is to avoid what I call a ‘Liquidation Event.’”
“Ever since we saw what happened when Lehman was liquidated, they realized we can’t go there. Fannie was taken over as well as AIG and GM to prevent this liquidity event. But I think the market is just liquidating, irrespective of whether the powers that be want it or not.
I just think that process is picking up into a tsunami…
“…and the world is going to start focusing back on precious metals. We’ve had one Minsky moment in Greece and we’re going to have another one.
As these Spanish yields and Italian yields move up here, it will become a Minsky moment in those countries as well. I would suggest the same would be true for most major developed economies because the obligations of the state are way beyond the productive capacity of the remaining workers to fund those obligations.
I think on a worldwide basis, whether you’re talking Japan, England, the US, and all of Europe, people are going to realize that we have too much debt here. At a certain interest rate cost, we can’t pay the interest.
That’s exactly what I would imagine should unfold here. That’s what’s causing the bank runs. That’s what’s causing interest rates on sovereigns to rise, and I think that’s what will tip over into a mass desire to get involved in precious metals.
You know, the most stunning thing about the bank runs, and I’m going to focus on the one in Greece, I really couldn’t believe that people took 500 million euros out of Greek banks on Monday. This country has had a problem for two years.
had one bond restructuring already, and here we are two years later and people are finally figuring out they should take their money out of the bank. I don’t know why it takes so long for people to put two and two together, but I’m happy they are finally doing it.”
Here was a portion of what Sprott had to say about gold and the recent decline in the gold market: “I put it all down to the shenanigans that have gone on at the COMEX. As you know, some of the major dealers, who are embroiled in some of their own issues outside of the gold market, were short gold and silver.
I think the downtrend was engineered because when you look at the physical aspects of gold, they seem totally different than the paper aspects of gold. The major dealers, who have now massively covered their short positions, orchestrated the takedown in the face of fundamentals that were just screaming to buy gold and silver.
The key thing, Eric, that everyone should focus on is you always have to look at what’s going on in the physical markets. We’ve had some dramatic numbers recently. Of course, the most dramatic one is what’s going on in China.
Yesterday we had the World Gold Council saying that Chinese demand would be up 30%. I would always suggest to people that when somebody says they are going to increase their demand by 30%, in a market where the supply is flat, it’s almost impossible to do that without the price rising.
We’ve seen in the last nine months that exports of gold from Hong Kong into China have increased by a factor of almost ten times. The numbers are truly staggering. For example, in March the exports from Hong Kong (into China) were 64 tons.
I would remind everyone that the available supply to the world, ex-China, ex-Russia because China and Russia consume their own gold, the mining output is only 2,200 tons, which is less than 200 tons per month. When someone comes in and buys 64 tons in a month, that’s over 30% of the market.
How you can satisfy that change in physical demand when there is no increase in supply is mind boggling. I suspect that (Western) central banks have continued to surreptitiously sell gold by leasing gold to the bullion banks. When they go to call in those shorts, obviously the physical is not going to be available.”
Statistics: Posted by DIGGER DAN — Sat May 19, 2012 12:19 am
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