Futures File: Cattle selling for record prices; natural gas sinks to new low

Cattle Selling for Record Prices  

Many Americans take for granted that the supply of cattle (and therefore beef) will remain uninterrupted and prices will stay low. However, Mother Nature issued a wake-up call this summer when persistent drought in the Southern Plains damaged precious pastureland, causing cattleman to prematurely slaughter herds. The resulting constriction of supply sparked a rally in the cattle market that has seemed to have no end.  On Friday, record highs were seen yet again, with February cattle hitting $1.26 per pound. 

Although beef consumption has been dropping in the U.S. since 1987, expanding beef exports have bolstered prices. China’s burgeoning middle class has brought on a new class of customer for U.S. steaks and burgers. New free trade agreements with South Korea, Panama and Colombia have been seen as supportive for the beef industry as well. Exports to South Korea alone have doubled in the past year. 

As of Friday morning, February cattle were trading at $1.25 per pound. 

Natural Gas Sinks to New Low 

The price of natural gas hit a ten-year low on Friday, giving homeowners across the Midwest “that warm feeling.” 

Over 70% of homeowners in the Midwest heat using natural gas. So far, they have largely avoided unpleasant gas bills due to this winter’s mild temperatures and low prices.  Even this week’s blistering cold was not enough to spark a rally, with the market dropping another 37 cents per million British thermal units (-14%). 

Natural gas prices have been deflating due to a sharp increase in supply, driven by new production methods developed over the last decade.  Despite dropping prices, producers continue to drill for natural gas. This has served to exacerbate an already oversupplied market.  Some drillers continue to produce because they can operate at a profit by selling prized natural gas byproducts like butane, propane and ethane, while others had the foresight to have locked in higher prices using futures markets. 

Long-term, natural gas “bulls” hope that the natural gas market could work higher, driven by new demand sources.  Some point to the potential to run vehicles on natural gas, increased electricity production, or exports to foreign countries as factors that could turn the market around.  For now, the “bears” are winning, driving natural gas to a new ten-year low at $2.28, down 83% from its high in 2008.

Opinions are solely the writer's. Walt Breitinger is the president of Breitinger & Sons LLC, a commodity futures brokerage firm in Valparaiso, IN.  He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.