Beginning of a Cattle Top

The cattle market has reached new highs repeatedly this month. We’ve known for years that the U.S. cattle herd has been steadily declining. It currently stands around 89 million head, which is the lowest it’s been since 1952. This hasn’t mattered much as the decades long decline in US beef consumption has wilted domestic demand.  Furthermore, the impact of modern animal husbandry techniques have significantly increased the final weight of the cattle that hit the
slaughterhouses, thus supplying the market with more total beef on fewer total animals killed. All of this bearish information begs the question, “Why are cattle prices so high and where do we go from here?”

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Buying the ECB Rate Cut

The European Central Bank (ECB) is widely expected to cut their lending rates at the June 5th meeting. There are a couple of really interesting precedents setting up. First of all, the ECB is expected to
not only cut their discount rate but also the deposit rates paid to banks who park cash overnight at the ECB. Given the already low starting rate of .25% discount and 0% overnight, the expected cuts will cut the current discount rate in half and drive the overnight rate negative. Thus, the ECB will be charging banks to hold bank deposits. Secondly, the Euro currency market internals should be weakening ahead of the expected rate cut. After all, the rate cut should make owning Euros less attractive to the investing public’s hunt for yield. We’ll examine both of these situations as the former plays out on the
macro landscape while the latter presents an immediate trading opportunity.

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