Beef prices are at all-time highs, but one expert says a big reversal could be near.
Transcript:
CAROLINE WOODS: Beef prices are near all time highs. What’s behind that spike?
CARLEY GARNER: You know, there has been kind of a perfect storm of bullish fundamentals. I mean, I’ll just ramble off a few here. We’ve shut off the border between US and Mexico because of a screwworm issue. So that’s kind of her. Well, that’s kind of helped prices rally. We’ve had a multi-year drought and other conditions that have kind of dwindled the Herd here in the US. And on top of that, we’re seeing the consumer shift towards eating beef. I mean you’ve probably seen it if you’ve spent any time in social media, you see that there’s an inclination to high protein, low carb diets. And beef is a staple in that. So there’s all these things working together to push beef prices to all time highs. And the consumer has thus far continued to pay it without really asking any questions. One thing to keep in mind is we generally don’t see a spread. I just mentioned how cheap grains were. So corn, soybean, wheat usually when there’s cheap brains, that pulls the price of beef down, because the idea is those cattle are being Fed grains, and the price between those two assets should be more in sync than they are. This is, in fact, this is the widest price gap we’ve seen between those two assets ever. And it’s not even close. So my personal opinion is we’re probably in the last inning of this kind of chaotic deflationary move in grains and inflationary moving livestock. But I will tell you, as is always the case, markets can stay irrational longer than any of us can stay solvent.
CAROLINE WOODS: So if we’re in the last inning, does that mean beef prices are coming down or grain prices are going up?
CARLEY GARNER: I think we’re going to get a little bit of both. I’m more optimistic on beef prices coming down than grains going dramatically higher, although I think grains stabilize and maybe inch higher. But on the beef side of things, there’s a few things we look at in the futures markets. While there’s many things we look at. But one thing I really focus on is seasonality. Usually this time of year we start seeing peaks in beef prices, livestock prices. So seasonals are going to support a pullback here. That, what I look at the cot report. That’s the commitment of traders report. It tells us which types of traders are long and short and what magnitude speculators and hedge funds are sitting on the longest net long position in the history of feeder cattle. It’s not even, again, not even close. It’s wildly above anything we’ve ever seen. And we’re seeing something similar, but not maybe not quite as extreme in live cattle. So we’re in a situation where the news is insanely bullish. It just keeps the bullish news just keeps coming. Everybody is long. All the big speculators, big traders and funds are wildly long. Probably way too long for comfort. And at some point, there’s going to be something that tips the scale and entices these people to liquidate. And when they do, I think the downside is going to be tremendous.
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