A Sea Change For Cattle Prices
Jerry Welch - InsideFutures.com - Fri Jul 19, 7:46AM CDT

Jerry Welch, Commodity Insite!
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Below is my weekly newspaper column, Commodity Insite dated June 28, entitled, A Sea Change for Cattle Prices. I hope there is something in my ramblings you find of interest.


A Sea Change For Cattle Prices

A historic alteration, reshuffling or evolution is settling upon the cattle market. I have dubbed the metamorphosis as a sea change. One writer described the reworking of the cattle market as an,alternative meat arms race. Regardless of the wording used to describe what is rapidly unfolding in the cattle market there is no doubt that history is being made that will likely shake the cattle market and ranchers to their very core.

Simply put several plant-based protein companies have recently announced plans to start selling, ground beef in grocery stores. The ground beef they are selling is not from cattle but from plants that are grown. The poster child for fake beef is a firm called Beyond Meat. Here is their mission statement taken from their website.

At Beyond Meat, we believe there is a better way to feed the planet. Our mission is to create The Future of Protein--delicious plant-based burgers, sausage, crumbles, and more made directly from simple plant based ingredients. By shifting from animal, to plant based meat, we are creating one savory solution that solves four growing issues attributed to livestock production: human health, climate change, constraints on natural resources and animal welfare.

To grasp fully how the marketplace, Wall Street, investors and traders are viewing this plant-based alternative to beef burgers consider the following. On May 2, Beyond Meat had its initial public stock offering at $25 a share. On that same day, August live cattle futures traded a bit over $111. On June 18, the stock of Beyond Meat rose a bit over $200 a share but has since slipped back to about $170. At $200 a share, Beyond Meat stock had gained about 700% from the initial offering. August live cattle, on the other hand, fell to a low of $102 this week. And my work suggests loudly that August cattle should, could or may fall under $100 before long.

The marketplace certainly believes that plant based meat has an enormous potential to make money. But there are other equally important factors at work as well. From an opinion piece in the New York Times by Timothy Egan with a headline that reads, Fake Meat Will Save Us. Mr. Egan puts forth an argument for fake meat by stating at one point the following. At a moment when animal-based agriculture is near the top of planet-killing culprits, ditching meat for substitutes, faux or otherwise, is the most effective thing an individual can do to fight climate change, according to a study in the journal Science.

Before shrugging off fake meat as nothing more than a fad consider the following famous last words of some experts in the electronic and computer industry from years gone by. I think there is a world market for maybe five computers. Thomas Watson, President of IBM, 1943. "Television won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night." Daryll Zanuck, executive at 20th Century Fox, 1946. "There is no reason anyone would want a computer in their home." Ken Olsen, founder of Digital Equipment Corporation, 1977. "Apple is already dead." Nathan Myhrvold, former Microsoft CTO, 1997.

There is now a long list of firms entering the plant-based, fake beef, chicken and pork business. Based on history, competition for market share will only intensify with the bottom line being lower costs. That is how it works in a free marketplace. Computers, televisions and a wide range of other products have declined in price because of competition. The same will take place with plant-based meat and fake hamburgers.

Imagine, driving up to a hamburger joint with a menu offering a beef based burger for $8. Or, a plant based burger for $4. In your rear view mirror you notice younger folks eager to fight climate change to save the planet ready to place an order. I would bet heavily and so is Wall Street that the $4 burger will outsell the $8 burger.

A fundamental principle of economics is, price moves the product. There is also no doubt that as more and more firms enter the, alternative meat arms race, plant-based meat will get cheaper and cheaper making it more and more difficult for beef to be competitive. The same can be said about pork and chicken. In fact, fake chicken meat is now far outselling fake beef hamburgers!

A,sea change is at hand for the cattle market and ranchers. And the only positive I can offer at this point is the, sea change will not begin to be felt until 2020 and beyond. At least I dont think so.


After the close today, the USDA will release a Cattle on Feed report as well as a Cattle Inventory report. The odds are high both will be statistically bearish. But cash cattle are holding a stiff premium to futures and when it comes to reports there is no saying what surprises lurk hidden in the data. When all is said and done, the reports may be bullish and not bearish. Time will tell.

However, my lean for cattle, feeders and hogs remains that of a seller. The US is expected to produce a record amount of red meat between now and the end of the year which should cap rallies. On any bounce in cattle futures from here of $2 or more will push me to being a seller. Get ready.

For specific trading ideas or information about my twice a day newsletter, Commodity Insite call me at 406 682 5010. Or, drop me a line at commodityinsite1@gmail.com. Let me hear from you since this week has been exceptionally volatile. Exceptionally.

This week, I touted the long side of corn. After the washout this week, want to know my ideas? Let me hear from you! This week, I suggested bonds would outperform stocks. After the abrupt reversal with stocks and bonds yesterday and again today, want to know my ideas? Let me hear from you!

The time is 7:41 a.m. Chicago

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