The all-time high and ensuing fall in cattle prices brought a sigh of relief, as it appeared the cattle top was in. We sincerely thought we saw it coming in June when we discussed the “Beginning of a Cattle Top.” The fundamentals of the increased demand via the global growth of the foreign middle class demographic remains fully in play as well as this year’s supply issues as nothing has occurred on either of these fronts to change the market’s current dynamic. Therefore, the only question to ask going forward this year has been, “How high is high?” Recent action in the live cattle futures spread between the current, October contract and the next active contract in December provides us with some clues as to what’s next.
Removing the politics of the Russia-Ukraine issue and focusing on the economic implications of Russia’s bloodless annexation of the Crimean peninsula puts some trading opportunities on the table as global risk premiums jump. In order to do this, a couple of suppositions must be declared. First and most importantly, the United States will not actively engage Russian troops. In many ways, this is a replay of the Georgian conflict in 2008. Georgia was in revolt against Russia and wanted closer ties to the European Union and the US. Their cause was quickly championed by Western leaders until it became obvious that neither the European Union, The United States nor, NATO would take any military action to defend Georgia against Russia. This episode set the precedent for the current situation.