The Golden Calf - Beef beat gold as the surest commodity of 2011

Jan 13, 2012

The second half of 2011 was an excellent year for beef… at least on the stock market. According to the financial news publication Bloomberg, beef—feeder cattle, live cattle, and futures—beat out gold as the surest commodity.

The price of gold climbed tremendously in 2011. It started the year selling at just under $1,400 per ounce (oz.) and closed the year at just over $1,600 per oz. During that time, it broke a couple of records and set new highs, at one point reaching $1,923.70 per oz. Most of this activity has been attributed to people buying gold to hedge against inflation, the weak dollar, and economic uncertainty abroad.

While these prices may have been excellent for anyone already owning gold looking to sell, the extreme volatility of the gold market left the overall risk-adjusted gains of gold at just 0.147 percent, according to data compiled by Bloomberg.

Cattle, on the other hand, were far steadier. Though prices for feeder cattle and live cattle did not go nearly as high as gold, the lower volatility in beef made for larger risk-adjusted gains.

For feeder cattle, the riskadjusted return was 0.18 percent and for live cattle it was 0.155 percent. The beef market of 2011’s latter half might not have been as visually spectacular as that of gold, but it saw the most dependable returns of all the commodities.

The gains in beef prices are attributed to a number of limited-supply-related causes. Previous years of high beef prices coupled with high feed costs resulted in the current 50-plus-year low in the national cow herd. The continuation of this situation in 2011, coupled with the droughts in parts of the Southwest, has been incentive for producers to cull herds rather than grow.

In addition to local pressures, global demand has further reduced the availability on the national market. The burgeoning global middle class looking for more protein-rich diets has resulted in an uptick in U.S. beef exports. This has had a big hand in the value of beef on the market.

Hopefully, the world of beef prices will keep its golden shine for some time to come. — Kerry Halladay, WLJ Editor