Live cattle demand to pick up

US - Due to a persistent drought in Australia, livestock are in such poor condition that they are increasingly being shot as their condition deteriorates. According to the Australian Livestock and Property Agents Association, the shooting of animals was becoming more widespread because of the drought as farmers cannot sell their livestock and find it more economical to shoot them than to feed them. With pasture and water diminishing, little prospects for rain and feed prices skyrocketing, buying has all but dried-up. Some of the cattle is expected to be sold off to pet food manufacturers.
calendar icon 22 December 2006
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In recent years, while US beef was shunned by Japan and many other nations worldwide due to the mad cow disease scare, Australian beef began to take a foothold on these markets although the quality was not as desirable as US beef. Japan had become the largest purchaser of Australian cattle but will have to start looking back at US beef to satisfy consumer demand. Boneless cattle under 20 months (Feeder cattle) have been allowed since the ban and mad cow disease can take up to 7 years to develop and be detected.

The Japanese have not given up on US beef however and restaurants are urging the government to ease restrictions to allow US beef back in order to meet growing consumer demand. Exports to Japan were 200,000 tons in 2003 compared to 3,240 tons this year. Even if Japanese imports were to go back to only 50% of its 2003 levels, a strong price uptrend could develop. Meanwhile, prices in Japan have climbed due to the shortages created since the mad cow scare. Although US beef has been reintroduced to Japan since July 2006, imports have been slow. The US government has been pressuring Japan to raise the age to 30 months which is the international standard set by the World Organization for Animal Health.

Another factor affecting livestock is the price of feed. Last year March Corn was trading at 2.54 on Dec. 21, 2005; as of this writing, March Corn is trading at 3.76, a jump of 48%. Invariably, this increase will be passed on to consumers as strong demand for Corn continues to grow due to the ethanol industry’s expansion.

Technically speaking, Live Cattle prices have been trading in a range between 88.98 and 91.20 while breaking both above and below the channel with little success. Fundamentals favor this market to the upside, however we need to see a trend establish clearly which we still don’t have at this point.

Source: Optimus Features Blogs
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