May 21, 2024

Commodity Insight: Where will the markets be a year from now?

A year ago, my column in this newspaper was entitled “Cattle supplies to tighten moving forward.” The day I wrote that column December live cattle futures traded around the $154 level, but a few days ago kissed $192.

On the same day, November feeder cattle traded at $181, but touched $268 a few days ago. The rise with cattle prices, cash and futures has been historic.

And in the final sentence from the previous column I wrote, " I am quite bullish cattle and now believe cattle, cash and futures will rise to $180 to $185 before 2024.”

Needless to say, cattle supplies tightened and cattle prices rose higher than I projected. I am reposting my column from a year ago because the fundamentals for the cattle market remain bullish and are applicable to today.

And today I remain bullish cattle and fully expect even higher prices yet.

Cattle Supplies To Tighten Moving Forward

There are scenarios and forces at work that are, by any measure, bearish most markets. I am specifically referring to the Federal Reserve and other world central banks that are lifting interest rates at the fastest rates in 40 years to fight inflation.

The central bank’s major tool to lower inflation is by hiking rates. But only with the benefit of hindsight do economists and the rest of the world know that such a policy was successful or not.

But what we do know is that based on history the U.S. Fed generally gets what it wants — which, of course, spawned one of the most famous old sayings in history, namely, “Don’t fight the Fed.”

Thus, with the Fed trying to break the back of inflation, it suggests that buying any market in hopes of catching a money-making bull move is not a wise course of action. Still, even in a period of rising interest rates some markets, if bullish enough, will rise in value.

I have stated time and again that there are only two ag markets I am comfortable trading on the long side of the ledger.

One of those markets is cattle and this week the U.S. Department of Agriculture released a Cattle on Feed report that was flat-out bullish and sets the stage for much higher prices down the road.

The Cattle on Feed report was not a surprise to me, but I was more than happy with the data as announced. So were many others.

From Agriculture.com with a headline that reads, “Expect tighter supply of cattle in 2023, analyst says,” the first paragraph in the article reads as follows: “Though cattle marketing numbers were heavier than expected late summer and fall, expect that beef production and the number of cattle marketed will be lower in the year ahead.

“Why? The quick answer: higher input costs and drought conditions in key cattle-producing states will mean less inventory in the months ahead.”

And I totally agree with that assessment of the cattle market moving forward. In fact, I made a similar forecast not long ago.

My weekly column for this newspaper in November 2022 was entitled, “A shortage of beef and pork in 2023.”

Based on this week’s Cattle on Feed report that was bullish, here are a few of my comments from back then: “The odds are high that the cattle market is on the verge of moving north in a big way. As I stated in this column at the beginning of the year, the upside potential remains to be seen, but with inflation running at its highest level in three decades and the entire globe in the early stages of a commodity supercycle, a reasonable upside target for both cattle cash and futures is $160 to $170.

And here are the final few sentences from that column: “As long as the economy is creating jobs and inflationary pressures persist, there will be upward pressure on livestock prices.

“In fact, in the year ahead, a shortage of red meat, beef and pork will be a headline grabber. Yes, a shortage of beef and pork appears likely.”

Agriculture.com also stated the following: “Ultimately, shortfalls of heifers and a lack of financial incentive to build the herd leaves a trend of lower supplies. Until input (feed) prices decline, expect this trend to continue. Tight inventory will keep live cattle prices supported.

...Today

My purpose in reposting my column from a year ago is to suggest cattle prices have more to go on the upside. Another reason is to show how quickly a market can evolve into a rip-roaring bull in a short time.

The one market that may rise to new all-time high prices in the year ahead is soybean oil that traded under 55 cents a pound this week. I fully expect soy oil, which is both a food and biofuel market, to rise to 90 cents a pound.

A number of other markets have the potential to rise sharply, as well. Where will the markets be a year from now?