Speculators Ride to Cattle Ranchers' Rescue

Even as the Commodity Futures Trading Commission is preparing to demonize speculators for last year's run in oil prices, those favored scapegoats of the marketplace may be helping out cattle ranchers.

It's been a tough summer for the Texas cattle industry. Demand has been hurt by the recession, and drought has put the state on track to top the record losses of 2006. So far, triple-digit temperatures and a lack of rainfall are blamed for about $3.6 billion in losses to the cattle industry.

Cattle futures, though, have been rising this month. The most active contract rose almost 7 percent before slipping about 1 percent today. The reason? Hedge funds and other market speculators are moving money out of corn, where near-record plantings are causing prices to fall, and putting it into cattle futures, betting prices will rise.

Large speculators more than doubled their long positions for the week ended July 14, and cattle prices appear headed for their highest level since October, Bloomberg News reported.

The influx of money into the meat markets comes after feedlots bought 14 percent less cattle in May than a year earlier, the fewest for that month in 13 years, according to the U.S. Department of Agriculture.

Higher prices won't offset drought-related losses, of course, but it may take the edge off the double-whammy that ranchers have faced this year.

Disclosure: no positions

Comments

[cameroni:]

Feedlots did not buy less cattle because they don't like the business nor because prices declined that's for sure. Feedlots bought less cattle because there were fewer quality cattle to be bought. The reason there are fewer cattle is because so many farmers have gone out of the business and sold off they're herds because of the recent and past bad years.

Fewer animals, fewer producers and an evolution to easier means to make a buck amongst an aging farm-owner population means that meat will be a tremendous business for investors in the near future.

The owner-operator farmer is aging. He is getting smarter about his investments and he is getting out of losing propositions. Land itself often provides better opportunities. The cattle business has not been all that lucrative for some time now and patience has worn thin. Especially amongst the small and medium sized long-term suppliers.

Those still standing will reap the benefits as cattle prices rise at a time when meat is coming into demand in all our foreign markets. Cattle is an excellent business to position into just now. It will be up to a younger generation to make a go of the new opportunities though.

Jul 24 03:55 AM

[ok77:]

Nice comment.
The high price for cattle is good for a few. Too many ranchers were forced to sell their herd in the drought when prices were low. Many of us are sitting on cash waiting for rain. After it rains they will start to buy back their herd and the high price for them will be one more thing working against them. This isn't the case for all ranchers, but a sizable percentage
-The price for cattle isn't a barometer for good times or bad. People in the oil industry always tell me when the price for cattle is up like its excellent news. Good News is good rain. (at least for cow/calf ops).
Another thing, the stats aren't very telling for this drought as most cow/calf operations before this drought hit were still understocked because of 05-06 drought. It takes years to build your herd back correctly. my numbers were at 850 in 2004, 440 in 2006, 580 in 2008, and now they are back below 500.

Jul 24 10:07 AM

[75 Year Old...:]

There s 10,000 dairy cows slautered every week now as Milk prices have broken a $1 a gallon retail , I wouldnt be buying any cattle futures right now .

Jul 24 11:13 AM