Sort & Cull

In estimating a record corn harvest of 14.4 billion bushels this week, the USDA unwittingly delivered very bearish news to the beef industry. This may not entirely explain why live cattle futures broke so hard from Wednesday through Friday. But believe me, it didn't help.

How does the old saw sing? Cheap corn always leads down the road toward cheap meat. Significantly reduced feed costs typically encourage more livestock feeding in general as well as the production of heavier animals and carcasses.

Such a flashing green traffic light is especially irresistible at the top of the curve when born-again meat producers still have extremely attractive deferred futures to target.

Yet this traditional scenario only begins to explain why cattle feeders are finishing the week with black-and-blue psychology. While the meat tonnage implications of a bumper corn crop can be bad news for all livestock feeders (i.e., from cattle to hogs to chickens to catfish), the standing monster waiting to be shelled represents a unique threat to beef producers.

Why?

Simply because cattle feeders find themselves locked at the bottom of the production cycle. It will be years until they can significantly expand the bunk line population, cheap corn be damned.

I suppose that might be good news if they could somehow convince their friends in the pork and poultry worlds to exercise the same prudence. But that's about as likely as peace breaking out in the Middle East.

As the increasing economic cost of feed naturally encourages the production of competitive meat, driving pork and chicken prices lower, beef prices at the grocery and on the menu can only look more and more expensive.

So if you see more feedlot managers in church this Sunday, it's a good bet they're praying for an early frost.

For more of John's comments, visit http://feelofthemarket.com/…

(AG)