Last autumn, $130 cash fed cattle and $200 Choice cutout looked like mere speed bumps on the way to record-high prices.
Since November 2011 Choice cutout made four previous assaults on the $200 level. It punched through in late May, then topped $210. The Choice surge was due in part to Old Man winter refusing to let loose his icy grip. That created pent up demand for grilling when weather finally improved.
Unfortunately, the $130 cash fed cattle barrier held. One reason is that by time the wholesale price surge came, cash fed cattle supplies were expected to begin rising seasonally. Forward-looking futures markets and to a lesser extent cash cattle markets saw weakness ahead. Current June fed cattle futures are trading $5 to $6 below the bulk of the most recent cash fed cattle trade.
Another reason is that analysts and retailers expect consumer pushback against high prices. A key signal will be consumer interest in buying beef after Memorial Day.
Grain farmers are familiar with the old market maxim that says the cure for high prices is high prices. High prices give users ample incentive to cut back. They do. Volume of grain moving falls. Prices drift lower. Corn is in what now looks like a typical short-crop, long-tail pattern.
Evidence is mounting that a similar phenomenon is occurring in beef. Some signs suggest trade chatter itself about high prices helps prevent higher prices.
Drought shriveling pastures and crops last year set the trade abuzz with talk of cattle herd liquidation. Combining super-tight beef supplies with higher cattle production costs had everyone projecting record-high fed cattle and wholesale beef prices.