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OPINION

Animal husbandry

Animal husbandry
July 30, 2014
Animal husbandry

Starting with the chart for live cattle futures (Chicago Mercantile Exchange front month contract) it's priced as cents per pound for slaughter-ready animals weighing on average 1,250lbs, fattened up on corn in feedlots for about five months, mainly in Nebraska and Texas. It's worth noting, however, that the biggest exporting countries this year are India, Brazil, Australia and the United States - in that order.

Like all too many commodities, prices soared to a record high 171.9 cents per pound late in 2014, lagging well behind crude oil and gold, then coming down to earth with a bump. Nevertheless, they remain well above the secular trading band between 60¢ and 100¢ on increased demand. This could of course fall away but once we get a taste for a treat it's hard to break the habit. Therefore we favour a period of greater stability this year, with prices holding roughly between 105¢ and 135¢ as they did from 2011 to 2013.

 

 

Next a look at CME lean hog futures and similarities abound. The collapse this year has been more severe, but should not come as a surprise as the pig industry is terribly efficient. The breeding cycle is short, just six months from birth to the slaughterhouse (average weight 250lbs), two litters a year, with each sow typically producing nine piglets. Current prices are back inside the very broad band that dominated for most of the 20 years since 1996 (excluding the massive spike high), something closer to an equilibrium. We expect the status quo to re-establish itself, farmers responding quickly to supply and demand as the boundaries at 40¢ and 80¢ approach.

 

  

Which obviously takes us next to Chicago Board of Trade soybeans. First cultivated in China nearly 6,000 years ago, their 38 per cent protein content makes them the 'king of beans' with twice as much protein as pork and three times as much as chicken eggs, both of which are reared on them. The bull market kicked off in 2007, taking prices per bushel to a record high of 1,794.75¢ (front month). This was almost double the upper edge of the broad band that had dominated since the 1970s and proved completely unsustainable, with Argentina and Brazil able to produce up to three crops per calendar year. Now we are dropping back inside the inner band and could easily slide towards a central rate around 700¢.

 

 

Last but not least, corn - not the seeds of any old grain but that of maize, also known as sweetcorn in the UK or Indian corn; Zea mays, a tall plant originally grown in Mexico with large elongated ears of starchy kernels. Again, not surprising that the chart looks so much like that of soybeans as the two are interchangeable for animal feed as well as oil. Back inside its very long-term range courtesy of hardy strains.  

 

 

Which brings us back to eating habits, as higher consumption of all four commodities is matched by production efficiencies.