The Seven State Cattle on Feed report for January indicated 92 percent on feed, 104 percent placed and 101 percent marketed. Trade estimates for placements were 103 percent only one percent less than analysts anticipated. Marketed cattle were reported three percent higher than a year ago and we think this number is quite bullish and gives further indications that demand is alive and well.

There seems to be an undercurrent of fear in the industry that consumers will begin to balk at record level prices for beef and begin taking home cheaper pork and poultry. We tend to think that consumers are less likely to shift products than the analysts think. Granted, if retailers feature pork and poultry over beef there will be a slight shift due to pork and poultry being put on sale rather than beef prices being higher. The retailers might be better off if they put all meat on sale at a level that is more reasonable to the consumer. Record retail prices have been around for about a year and $80.00 cattle only for a week. It seems premature to think sticker shock will back off demand as quickly as thought. Historically, retailers use high priced cattle as a reason to increase already out of bounds retail price. Let's hope this time around the retailers at least slow the pace of increasing prices.

We do not think this bull mark is over although the air does get a little thin at these price levels. We've seen $80.00 (plus) cattle in 1991, 1993, 2001 and now in 2003. There appears to be a ten-year cycle for highs. In 1991, 1993, and 2001, the bull markets ended in March. Could it be that 2003 would end in March as well? Given the current fundamentals of supply and demand the current bull market may have some more steam. February and April cattle are at levels that some hedging with futures may be advised. The June and August contracts appear to be under priced to us and we would prefer to wait for a rally in March before using futures to hedge those months. However we want to alert producers that cattle futures are very sensitive to news events. The recent announcement of a scientist reporting the theft of 30 vials of bubonic plague caused an exit of traders from the market at limit down. The truth was discovered by mid afternoon the same day but the market has not recovered fully. If these vials had not been found we can only wonder where futures prices would be today. Therefore we continue to advise buying put options on all cattle being fed as price insurance on the unknown.

In our opinion, feed costs are likely to increase into at least the second quarter and we advise producers to buy corn call options to cover the next six months of feed needs. We are a little less bullish on corn prices than we have been in the past but still think there could be a 30 to 40 cent rally before the second quarter is over. ©

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