Thursday, January 20, 2011

After Trading at All-time High, What's Next for Cattle Futures?

Paging Hillary Clinton.*
From Global Macro Monitor:

Specs Fuel “Bizarro” World of Live Cattle Futures
After reaching a high of $112.375 – the highest for a closest-to-expiration contract since CME launched cattle futures in 1964 – February live cattle futures fell today to the equivalent of $108.80 per hundred points. The price hit a previous record of $107.05 in September 2008 during the commodity bubble that sent crude oil up to $150 a barrel. Drovers CattleNetwork writes,
CME Group traders such as Jim Sauter say cattle prices have climbed above levels justified by current supply and demand patterns. While the total U.S. cattle inventory is near the lowest on record, beef production actually increased last year because of heavier animals, Sauter noted.
Additionally, growing concern over food inflation has propelled a flood of speculator money into grain and livestock futures, setting markets up for a repeat of 2008, when prices surged before tumbling sharply, Sauter said…

As in 2008, hedge funds and other speculators were heavy buyers in grain and livestock futures over the past year.  Swap dealers and managed money, the two largest categories of speculators tracked by regulators, held 34 long positions for every one short position in CME feeder cattle futures last week.
In another gauge of investor bullishness, the speculator net-long position in feeder cattle futures and options totaled 18,622 contracts for the week ended Jan. 11, according to the U.S. Commodity Futures Trading Commission. That was the largest net-long position in feeder cattle since at least June 2006, when the CFTC began tracking the data, according to Bloomberg News.
Finally,  this really sums up what is happening across almost all commodity markets,
“This is bizarro world,” Stanley said yesterday. Cattle futures are “probably $4 to $5 overpriced. We’re a house of cards here.”
The spike in agricultural prices is causing food riots and now even toppling governments....MORE

HT: The Big Picture

*The Secretary of State famously ran $1000 to $100,000 in ten months of astounding cattle futures action:
"This is like buying ice skates one day and entering the Olympics a day later," 'says Mark Powers, editor of the Journal of Futures Markets. "She took some extraordinary risks."