I ain’t got no beef

An old joke goes…”I went to the butcher shop and bet him $20 that he can’t reach the meat from the top shelf….the butcher replied by saying I can’t take that bet. When I asked him why not, he said the steaks were too high”.

That resonated.

Yesterday, I noticed beef eye fillet was selling for $80 per kilogram.

Cattle prices are at an all-time high.

The attached monthly chart notes the percentages which Cattle prices were trading above its 50 month moving average. The circles also highlight moments when Cattle registered a monthly overbought reading. This has only occurred 7 times over the past 50 years.

Combined with other observations, I think opening a speculative ‘long’ Cattle position is a terrible bet.

It’s worthy to note that since the Russia/Ukraine War commenced, grains prices have halved which has improved the margins for many farmers.

But now, we have an inflection point where the price of grains (used in pastures and feedlots) are making oversold lows and live cattle prices are at the upper end of their pendulum.

With these prices, farmers should consider selling a greater percentage of their stock than they normally do before mean reversion eventuates.

In fact, it is a sellers market and that includes selling the whole enterprise, ranch or cattle station.

Buyers romanced by owning a cattle business can take their chance, but it’ll be best to focus on rearing rather than buying weaners or yearlings.

Speaking of margins, also watch if the CME increases the maintenance margins of its live cattle futures contract.

June 11, 2023

by Rob Zdravevski

rob@karriasset.com.au