CME: Livestock Futures Reflect Uncertainty
US - CME's Daily Livestock Report for 3rd October 2008.While livestock futures continue to reflect the overall uncertainty
in the broader equity and commodity markets, the mood
has turned decidedly bearish, at least in the short term.
Both cattle and hog futures declined sharply in the week ending
October 3 and Monday trading could again reflect the negative attitudes
regarding the outlook for the global economy.
European and
Asian stocks were sharply lower late Sunday and early Monday
morning and this could weigh on cattle and hog futures when markets
open on Monday. With the financial rescue package signed
into law, the market has now turned its attention to reports that
global economic growth may be grinding to a halt. Already there
are plenty of indications that US and EU countries could slide
deeper into recession in the next couple of quarters, especially now
that consumers have begun to pull back on their spending. As
spending declines, businesses have to lay off workers, which in turn
leads to even larger reductions in purchasing power and thus producing
a self sustaining downward cycle.
Meat consumption generally tends to suffer during a recession,
although the last two recessions in the US have been relatively
short. Some studies have shown that consumers tend to
spend less during a downward cycle while they spend more time
shopping, searching out lower priced goods. A big fear going forward
is that a global economic recession could cause sharp
reversals in the export gains made over the past decade.
Indeed, this is a new chapter for the US industry as never before
have US beef, pork and poultry producers been so dependent on
global markets. A growing middle class in developing countries as
well as a weaker US dollar led to a boom in US pork, poultry, and
to a lesser extent beef exports during this decade.
But, the US currency
has strengthened recently, in part due to the repatriation of
US dollars as well as because of a shifting interest rate landscape
in other markets. While one can argue about the long term outlook
for the US dollar, especially given the increasing liabilities of
the US government, in the short term, the strength of the US dollar
is a significant negative factor for the livestock industry. As for
producers, lower domestic and export sales could lead to further
reductions in output and more consolidation along the supply
chain.
