Canadian Poultry Magazine

All Things Considered: ‘Who are those guys?’

Jim Knisley   

Features Business & Policy Farm Business

‘Who are those guys?’

Meat producers may well be uttering that line taken from Butch Cassidy and the Sundance Kid in coming months.
Until now it appeared that those guys were a posse of commodity
speculators, Asian consumers and ethanol producers determined to track
down and consume every last kernel of grain. But it is starting to look
like a second posse is forming and it will be made up of consumers,
supermarkets, feedlot owners and beef and hog producers.

Meat producers may well be uttering that line taken from Butch Cassidy and the Sundance Kid in coming months.
Until now it appeared that those guys were a posse of commodity speculators, Asian consumers and ethanol producers determined to track down and consume every last kernel of grain. But it is starting to look like a second posse is forming and it will be made up of consumers, supermarkets, feedlot owners and beef and hog producers.

The first posse didn’t quite catch our boys, but did make life miserable by driving up grain and oilseed prices around the world. The U.S. version of Butch and Sundance – poultry producers in their other lives – have few allies and are taking all the financially crippling blows. They watched as the Pilgrim buckled under the assault shutting plants, exiting turkey and making itself a smaller target.

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Canada’s Butch and Sundance have an abundance of friends, a wall to duck behind and the ability to pull in more money when the cost of feed goes up. Their pork- and cattle-producing neighbours have no such protection. They are starting to buckle and the cattle guys south of the border and the hog guys north of it are starting to shrink.

That could be a problem. When the cattle and hog guys shrink, the roads (and supermarkets) become clogged with cheap meat. In the long term the meat will disappear, supplies will tighten and prices will rise. But as Sundance’s friend John Maynard Keynes once observed: “In the long run we’re all dead.”

Already in the U.S. cattle producers are moving cows and heifers to feedlots. Feedlots are shortening the cattle’s stays and moving lighter than usual animals to packing plants. If this continues the meat will show up in increasing amounts in supermarkets, prices will fall and consumers (particularly in Canada) will be faced with a beef or chicken dilemma.
It isn’t the first time this has happened, but in the early 1970s it happened in a big way.

Grain prices back then soared as they have this year and livestock producers fell into a major cost-price squeeze. They shrank their herds. For a while beef and pork was plentiful and cheap.

But that soon ended. As supplies tightened, meat prices rose and joined oil and grains as a driver of 1970s inflation.

If there is a bright side to this it may be that fewer cattle and hogs may mean less pressure on corn and soybean prices. But then again it may not.

The U.S. ethanol industry is on the verge of another big expansion and lower corn could encourage them to operate flat out. Canada’s ethanol industry is also expanding.

Meanwhile India and China aren’t getting any smaller and they are getting richer. It’s hard to imagine that demand for grain and oilseeds in those two countries and elsewhere has anywhere to go but up.

While forecasters say grain and oilseed markets might not soar as high in 2008/09 as they did in 2007/08 they are virtually unanimous in predicting higher average prices in the coming crop year.

And they caution that word of drought; disease or pest problems virtually anywhere will result in extreme volatility.
They also warn that anything that looks like a runup in prices could bring speculators out of the woodwork. Billions of dollars moving in and out by the hour (or the minute) does nothing to promote predictability or stability.

What is scary is this is happening before spring crops are planted and grain markets move into what is traditionally their most tumultuous time.

This year the weird got going way ahead of schedule.

There is another interesting phenomenon occurring down in Chicago. While both soybeans and soyoil prices have been bouncing around all-time highs soyoil prices have been particularly strong.

The value of soyoil as a percentage of the soybean crush rose to over 50 per cent versus 40 per cent a year ago. In other words, this year soyoil is the main product while soymeal is the byproduct. Last year it was the reverse.

If you want an explanation for this it’s probably wise to look at China which prefers to crush soybeans, but has a seemingly insatiable demand for soybean oil.

If soybean supplies were more plentiful this would be good news for livestock, and especially poultry producers.

This whole thing seems like the scene where Butch and Sundance are standing on a cliff looking down at a raging river with the posse closing in.

Butch says they have to jump. Sundance says no they’ll fight. Butch says they can’t win and asks why Sundance wants to fight. “I can’t swim,” says Sundance. “Don’t worry,” says Butch, “the fall will probably kill you.”

This may be a good year to brace for the fall and learn how to swim.


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