On Wednesday morning we reported the new retail sales would provide for a bearish trade for the day. Essentially the market has been reminded the economy is still declining and has not reached a low of any measure yet. Many economists are expecting the current environment to be labeled as a recession and for it to worsen into 2009. In our view that is not unreasonable. The main question for us on the beef end is for how long economic bears will run the show (how long will beef piggyback on the stock market gains or losses)? You could argue we have 1) concerns about the economy and therefore beef demand and at the same time 2) continued general commodity market liquidation. This will mark the 17th week of liquidation from the long-only players. With these two factors can we say there is a true value out there for beef? The one really supportive factor we have on the economic front. Massive injections of money into the economy in the second half of this year and unchanged or lower demand for that money (GDP growth) will likely mean big inflation by mid 2009. The only question we have is when that inflation really heats up. This inflation should be very supportive to hard assets. However, we will caution that is only a long-term view. We do not know when inflation will hit or, after it does, how long it takes to support cattle prices. Keeping this discussion simple and practical what we do know...is bears are still running this show and there is no sign they are relinquishing control. Feedlots are panicking as shown by the active trading in the cash cattle side of the industry Wednesday at $90. That marks a $2 lower trade from last week's prices. We previously pulled our limited hedges after the first half of this down move. Because no one can call a bottom or say where true value is right now we will put on puts for hedgers. For speculators we cannot understate how important it is to not stand in front of this market with buy orders. Someday it will be a great buying opportunity, the only question is at what price to start from. In other news we have what looks like a bullish Cattle on Feed report set for Friday at 2pm. It may not stop the bears, but will be something to monitor.
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