US Cattle Herd Drops to 1958 Levels

Ranchers are culling the herds as corn prices soar and wholesale prices for beef and milk drop.

My personal view is that this is a manifestation of economic distortions and malinvestment due to government interferience in a variety of feed markets over a number of years, as well as paper speculation driving prices in a way that is not connected with physical supply and demand.

Is there a significant change in American dietary habits and an oversupply of beef and milk? It does not seem as though the retail prices of milk and beef are dropping in concert with this, which may be dampening demand.

Let them eat iPads and CDO's.

BusinessWeek
U.S. Cattle Herd Falls to 1958 Low as Losses Climb, Survey Says
By Whitney McFerron

Jan. 27 (Bloomberg) -- The U.S. cattle herd may have shrunk to the smallest size since 1958, as mounting losses during the recession spurred beef and dairy producers to cull animals, analysts said.

Wholesale choice-beef prices averaged $1.4071 a pound last year, the lowest level since at least 2004, as U.S. job losses climbed and meat demand waned. Corn, the main ingredient in livestock feed, jumped to a record $7.9925 a bushel in 2008 on the Chicago Board of Trade, and prices averaged about $3.79 last year, the third-highest annual average since at least 1959.

“There’s not much incentive to be building herds,” said John Nalivka, the president of Sterling Marketing Inc., a livestock-industry consulting company in Vale, Oregon. “Costs of production across the cow-calf sector and in dairy have gone up in the past two years, and prices have come down” for beef and milk, he said.

Futures prices for feeder cattle, the young animals that ranchers sell to feedlots to be fattened for slaughter, averaged 96.821 cents a pound last year on the Chicago Mercantile Exchange, the lowest level since 2003. Feeder-cattle futures for March settlement rose 0.2 percent yesterday to 98.975 cents a pound on the CME.

Slaughter-ready cattle futures for April delivery dropped 0.9 percent yesterday to 89.325 cents a pound.

Rancher Losses

Cattle ranchers in the southern Great Plains lost about $34 on every breeding cow they owned last year, following losses of about $18 a head in 2008, according to Jim Robb, the director of the Denver-based Livestock Marketing Information Center, an industry- and government-funded researcher.

U.S. beef production may total 25.45 billion pounds (11.54 million metric tons) in 2010, which would be the smallest amount since 2005, Robb said. The USDA forecasts output at 25.58 billion pounds.

“We’re forecasting that beef production in 2010 won’t be the smallest since 1958, because the average animal processed now weighs twice as much,” Robb said.

The number of young female beef cattle held back for breeding in the U.S. may have fallen to 5.45 million animals, down 1.4 percent from 5.526 million a year earlier, according to the average analyst estimate.

Dairy Cuts

Dairy farmers may be holding back 4.313 million young replacement cows for breeding, down 2.2 percent from 4.41 million at the same time last year, according to the average analyst estimate. The dairy herd is shrinking partly because of industry-funded cow culls last year aimed at supporting prices.

The so-called Cooperatives Working Together program removed about 252,000 dairy cows from production since December 2008, according to a statement on the group’s Web site.

“Last year was a terrible year for milk prices,” said Ron Plain, a livestock economist at the University of Missouri in Columbia. He said the industry-funded culling program is “one of the reasons why we’re down so much on milk-cow numbers from a year ago.”

The price of class III milk, used to make cheese, tumbled to a six-year low last year of $9.24 per 100 pounds, after global demand slowed. The price has rebounded 57 percent since then to $14.54 yesterday on the CME.

The US Bull Market in Smoke, Mirrors and Gullible Investors

We have given quite a bit of coverage to the somewhat 'thin' veneer of recovery being spun by misleading government econmic statistics in the US.

And we have certainly noted the almost blatant manipulation in many US markets, including stocks and commodities where the banks and hedge funds have been pushing prices around, sometimes with the help of the government, in a disgraceful repudiation of any notion of reform.

Thanks to the Tylers at ZeroHedge we have two very nice charts to present the case that the recent continuation of the US stock market rally is attributable to price manipulation largely in the after hours markets when trading is thin.

After Hours Verus Prime Hours Cumulative Trading Gains from September 2009



After Hours Versus Prime Hours Cumulative Trading Gains from March 2009



And a Ballooning Price-to-Earnings Ratio as a Result



Its pretty much a Ponzi scheme, and not all that well hidden. This is probably why insiders continue to sell in large numbers.

If the US market breaks it will go badly for many average people who do not understand how their government has failed to protect them.

But do not underestimate the power of the Bernanke Fed and its enablers in the central banks to continue printing enormous amounts of unfunded dollars and hiding the effects. This may buoy the US markets for longer than we might think, as it did in 2003 to 2007.

But at some point the payments will come due, value will be revealed, price discovery will assert itself, the US dollar and the bond will fail, and then comes the deluge.

Watch what India and China do with their reserves. They know full well what is coming and unlike the US are seeking to protect their people.

The AIG Scandal Is Merely a Symptom of Our National Agony

The AIG bonuses are a calculated distraction.

This is the heart of the problem:

We will have no recovery until the system is reformed and brought back into a sustainable balance. To achieve this end, the banks must be returned to business of banking again, with the reinstatement of Glass-Steagall. The hedge funds must be restrained through fundamental regulatory reform.

A private agency like the Fed is not capable of performing these tasks. The Fed, for all the rhetoric that surrounds it, is a private enterprise owned by the banks. The effectiveness of self-regulation and the rational efficiency of markets are the great myths that have led us to our current crisis.

The Fed as the great regulator for multiple markets is an attractive choice for the government, because when it fails the government may point the finger of blame, and absolve itself of all responsibility for our ruin as they are attempting to do now.

Slate
The Real AIG Scandal
By Eliot Spitzer
March 17, 2009, at 10:41 AM ET

It's not the bonuses. It's that AIG's counterparties are getting paid back in full.

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall.

Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes.

So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure...

How the Economy Was Lost

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration.

"How long can the US government protect the dollar’s value by leasing its gold to bullion dealers who sell it, thereby holding down the gold price? Given the incompetence in Washington and on Wall Street, our best hope is that the rest of the world is even less competent and even in deeper trouble. In this event, the US dollar might survive as the least valueless of the world’s fiat currencies."

Counterpunch
Doomed by the Myths of Free Trade
How the Economy was Lost
By PAUL CRAIG ROBERTS

The American economy has gone away. It is not coming back until free trade myths are buried six feet under.

America’s 20th century economic success was based on two things. Free trade was not one of them. America’s economic success was based on protectionism, which was ensured by the union victory in the Civil War, and on British indebtedness, which destroyed the British pound as world reserve currency. Following World War II, the US dollar took the role as reserve currency, a privilege that allows the US to pay its international bills in its own currency.

World War II and socialism together ensured that the US economy dominated the world at the mid 20th century. The economies of the rest of the world had been destroyed by war or were stifled by socialism [in terms of the priorities of the capitalist growth model. Editors.]

The ascendant position of the US economy caused the US government to be relaxed about giving away American industries, such as textiles, as bribes to other countries for cooperating with America’s cold war and foreign policies. For example, Turkey’s US textile quotas were increased in exchange for over-flight rights in the Gulf War, making lost US textile jobs an off-budget war expense.

In contrast, countries such as Japan and Germany used industrial policy to plot their comebacks. By the late 1970s, Japanese auto makers had the once dominant American auto industry on the ropes. The first economic act of the “free market” Reagan administration in 1981 was to put quotas on the import of Japanese cars in order to protect Detroit and the United Auto Workers.

Eamonn Fingleton, Pat Choate, and others have described how negligence in Washington DC aided and abetted the erosion of America’s economic position. What we didn’t give away, the United States let be taken away while preaching a “free trade” doctrine at which the rest of the world scoffed.

Fortunately, the U.S.’s adversaries at the time, the Soviet Union and China, had unworkable economic systems that posed no threat to America’s diminishing economic prowess.

This furlough from reality ended when Soviet, Chinese, and Indian socialism surrendered around 1990, to be followed shortly thereafter by the rise of the high speed Internet. Suddenly, American and other first world corporations discovered that a massive supply of foreign labor was available at practically free wages.

To get Wall Street analysts and shareholder advocacy groups off their backs, and to boost shareholder returns and management bonuses, American corporations began moving their production for American markets offshore. Products that were made in Peoria are now made in China.

As offshoring spread, American cities and states lost tax base, and families and communities lost jobs. The replacement jobs, such as selling the offshored products at Wal-Mart, brought home less pay.

“Free market economists” covered up the damage done to the US economy by preaching a New Economy based on services and innovation. But it wasn’t long before corporations discovered that the high speed Internet let them offshore a wide range of professional service jobs. In America, the hardest hit have been software engineers and information technology (IT) workers.

The American corporations quickly learned that by declaring “shortages” of skilled Americans, they could get from Congress H-1b work visas for lower paid foreigners with whom to replace their American work force. Many US corporations are known for forcing their US employees to train their foreign replacements in exchange for severance pay.

Chasing after shareholder return and “performance bonuses,” US corporations deserted their American workforce. The consequences can be seen everywhere. The loss of tax base has threatened the municipal bonds of cities and states and reduced the wealth of individuals who purchased the bonds. The lost jobs with good pay resulted in the expansion of consumer debt in order to maintain consumption. As the offshored goods and services are brought back to America to sell, the US trade deficit has exploded to unimaginable heights, calling into question the US dollar as reserve currency and America’s ability to finance its trade deficit.

As the American economy eroded away bit by bit, “free market” ideologues produced endless reassurances that America had pulled a fast one on China, sending China dirty and grimy manufacturing jobs. Free of these “old economy” jobs, Americans were lulled with promises of riches. In place of dirty fingernails, American efforts would flow into innovation and entrepreneurship. In the meantime, the “service economy” of software and communications would provide a leg up for the work force.

Education was the answer to all challenges. This appeased the academics, and they produced no studies that would contradict the propaganda and, thus, curtail the flow of federal government and corporate grants.

The “free market” economists, who provided the propaganda and disinformation to hide the act of destroying the US economy, were well paid. And as Business Week noted, “outsourcing’s inner circle has deep roots in GE (General Electric) and McKinsey,” a consulting firm. Indeed, one of McKinsey’s main apologists for offshoring of US jobs, Diana Farrell, is now a member of Obama’s White House National Economic Council.

The pressure of jobs offshoring, together with vast imports, has destroyed the economic prospects for all Americans, except the CEOs who receive “performance” bonuses for moving American jobs offshore or giving them to H-1b work visa holders. Lowly paid offshored employees, together with H-1b visas, have curtailed employment for older and more experienced American workers. Older workers traditionally receive higher pay. However, when the determining factor is minimizing labor costs for the sake of shareholder returns and management bonuses, older workers are unaffordable. Doing a good job, providing a good service, is no longer the corporation’s function. Instead, the goal is to minimize labor costs at all cost.

Thus, “free trade” has also destroyed the employment prospects of older workers. Forced out of their careers, they seek employment as shelf stockers for Wal-Mart.

I have read endless tributes to Wal-Mart from “libertarian economists,” who sing Wal-Mart’s praises for bringing low price goods, 70 per cent of which are made in China, to the American consumer. What these “economists” do not factor into their analysis is the diminution of American family incomes and government tax base from the loss of the goods producing jobs to China. Ladders of upward mobility are being dismantled by offshoring, while California issues IOUs to pay its bills. The shift of production offshore reduces US GDP. When the goods and services are brought back to America to be sold, they increase the trade deficit. As the trade deficit is financed by foreigners acquiring ownership of US assets, this means that profits, dividends, capital gains, interest, rents, and tolls leave American pockets for foreign ones.

The demise of America’s productive economy left the US economy dependent on finance, in which the US remained dominant because the dollar is the reserve currency. With the departure of factories, finance went in new directions. Mortgages, which were once held in the portfolios of the issuer, were securitized. Individual mortgage debts were combined into a “security.” The next step was to strip out the interest payments to the mortgages and sell them as derivatives, thus creating a third debt instrument based on the original mortgages.

In pursuit of ever more profits, financial institutions began betting on the success and failure of various debt instruments and by implication on firms. They bought and sold collateral debt swaps. A buyer pays a premium to a seller for a swap to guarantee an asset’s value. If an asset “insured” by a swap falls in value, the seller of the swap is supposed to make the owner of the swap whole. The purchaser of a swap is not required to own the asset in order to contract for a guarantee of its value. Therefore, as many people could purchase as many swaps as they wished on the same asset. Thus, the total value of the swaps greatly exceeds the value of the assets.

The next step is for holders of the swaps to short the asset in order to drive down its value and collect the guarantee. As the issuers of swaps were not required to reserve against them, and as there is no limit to the number of swaps, the payouts could easily exceed the net worth of the issuer.

This was the most shameful and most mindless form of speculation. Gamblers were betting hands that they could not cover. The US regulators fled their posts. The American financial institutions abandoned all integrity. As a consequence, American financial institutions and rating agencies are trusted nowhere on earth...