Hog-Wild Grain Prices Put the Pinch on Livestock Farmers

By Mike Burnick

Iowa livestock farmers aren't living high on the hog these days.

Recent flooding in this key section of America's farm belt dealt yet another blow to farmers. They're already in a bind due to sky-high feed costs and low livestock prices.

"Livestock farmers and meat producers across the country have been dealing with soaring feed costs for nearly two years," explains a recent Wall Street Journal article.

"Now, heavy flooding in Iowa is sending corn prices even higher. Thursday, the corn futures contract for July delivery closed at US$7.27 a bushel on the Chicago Board of Trade, up about 13% from two weeks ago."

We're in the midst of a long-term bull market in commodities. In this kind of cycle, all commodity prices eventually soar to record highs, but performance is uneven from commodity to commodity.

While everyone is focused on soaring crude oil prices, some of the best values in commodity markets are in the agricultural sub-sector - especially livestock prices (lean hogs and live cattle).

According to my colleague Eric Roseman:

Over the last six years, live cattle and lean hogs have gained just under 30% in nominal terms, or up barely 4% adjusted for inflation.

Livestock has essentially been standing still compared to soaring grain and energy prices. In fact, over roughly the same time frame, crude oil is up over 600% in value! Corn prices (a key feedstock for livestock) are up 120% in the past year alone!

You might say Eric is hog-wild for livestock, and I believe he's right on the money. Look for the next big round of commodity market gains to come soon.

Comments

[piel canela]

Do we expect a temporary drop in pork prices, if farmers send the porkers to market (due to a feed shortage)? If so, how long?

[secmaven]

If you think lean hogs and fat cattle will go up buy COW. This Barclay's ETN tracks the DJI commodity sub indext composed of those two agricultural products. Unlike other commodities storage is a serious impediment to index fund and pension fund "investment" in this commodity. So don't expect the fireworks we have seen in the "storables."

[puttster]

COW's futures are short term. It cannot take advantage of the expected shortage in livestock 12-18 months out. By the time COW buys those it will be too late.

I don't know how one can take advantage of the current slaughter but I do not believe COW will do the job.

[blink0404]

What a timely article. I found one similar on grain, corn, and soybeans today on greenfaucet. Very similar message with a little more analysis. Check it out: www.greenfaucet.com/co...

Also pretty good analysis of what to buy, predictions for the future.