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Cattle Prices Stampeding

Tony Wikrent's picture

Cross-posted from Real Economics.

Courtesy of Barry Ritholtz at his The Big Picture. Go look at the chart - very scary. Ritholltz notes: "MacroMan points out that Live Cattle Futures have gone parabolic; Daniel Dicker blames speculative derivative traders and a lack of oversight as the cause."

Look at the chart here.

In related news, a commenter at Naked Capitalism noted that "Iron ore prices soar to record high? – Iron ore prices have hit an all-time high as supply disruptions in India, the world’s third-largest exporter of the steelmaking commodity" and "Pakistan’s cement sector is likely to feel the heat of the soaring international prices of coal, going forward. Global coal prices continue to climb, already 34% up since June 2010."

Yeah, well, thank God there's no inflation, or we'd really be screwed. (snark)

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Submitted by MontanaMaven on

Let's keep this story front paged. My hunch is that it is speculation. Like the article in Harper's and also Rolling Stone and in Matt Taibbi's "Griftopia".

But I'm sitting in a bar in Montana and some guy says, "Well, the head of the National Cattleman's Beef Association says it's supply and demand." As it happens he's a neighbor. And we have had our disagreements, to say the least. I think he spews talking points and so rises to the top of an organization. so the meme is those floods in Australia. But I don't buy it.

Also, corn subsidies should be ended.

Oh my, so many frauds and too little time.?

Submitted by Fran on

"Like the article in Harper's " which was in depth about the grain prices awhile back.

It is all speculation - gambling - where the actual product is incidental. An idea catches on and the money sloshing around looking for a place to invest all rushes over there and causes the prices to skyrocket. This is the problem with a lot of money looking for a quick return, like a pyramid, instead of actually creating or developing anything.

If supply and demand were really the factors, why would markets remain fairly stable for years and suddenly become volatile? As I recall from the Harpers article, there were actually huge stores of grain while people were starving.

Submitted by MontanaMaven on

by hoarding wheat. In India's famine in the 1940's Amartya Sen discovered that there wa plenty of rice put in storage. People were hoarding and letting people starve.

The Harper's article shows that this latest speculation of wheat that caused millions to starve is even worse. These guys don't even buy and hoard the stuff. They just buy futures and keep rolling them over. Yes, we should make them pay a tax that they can only get back if they actually are going to buy some cows.

Submitted by Hugh on

This is all speculatively driven commodity price inflation. It would be happening regardless of flooding in Australia. Supply-demand is always trotted out as a ready made excuse for it. Even people who should know better use it. I remember writing about how this kind of speculation worked back in 2007 during the big oil price spike. People at the Oil Drum were all buying into. They are really strong there on the physical side of oil and really pretty weak on the market side of it. Anyway they would talk about supply and demand even though they could never match either supply or demand to what prices were actually doing. My standard response is to go look at future prices from 2004 through 2007, compare them year over year and try to compare that to supply-demand figures over the same period of time. You see in ordinary speculation prices will react to real events or fears of some event that could reduce the supply of oil, but when the danger's past prices should revert to their pre-crisis levels, but beginning in 2004, they don't.

You see that's the giveaway not just for oil but for all commodities. We expect scarcity to produce price increases but not these increases. The across the board nature of this is also telling. Corn can have a bad year. You can have floods or a drought, but iron? Iron doesn't have these problems. Nor will some isolated problems have much of an effect on it. And even if there is some effect it shouldn't be very large. And if you can find an excuse for iron, then what about copper? It too isn't like corn. How likely is it that it too had some disrupting event? And so. You can do this commodity by commodity. For many of these the price increases, the degree of them, makes no sense even in isolation. Take them altogether and you see that these price increases are manufactured by the financials. They have zip to do with the real market fundamentals.

Submitted by hipparchia on

yeah, funny how ETFs started proliferating at the time that commodity prices -- and unrelated commodities, like yopu say -- all started rising. hmmm, not long before the housing crash, either....