To the cliff

Dec 28, 2012

The so called fiscal cliff is set to occur early this week and it doesn’t appear that our leaders in Washington, D.C., are too concerned about the issue. There was a little noise made last Thursday. But it’s becoming apparent that we’ll take that ride over the cliff and it is probably just what they want to happen. Higher taxes and spending cuts is really what they all want at the end of the day and if they ignore the cliff, it happens and no one gets to take any credit or risk getting blamed. No political baggage will be assumed by any of these politicians and life will go on, as our do-nothing House and Senate prefer.

President Obama returned from his time in Hawaii and all the congressional leaders are in D.C. with no real plans to deal with the issue. It is relatively clear to me they are just waiting for the clock to move to Jan. 1, 2013, so they can go back to their partisan ways and do nothing for the next two years.

You have heard the old adage, “If you can’t fix the problem, you may be the problem.” Right now I think that’s what we have. Harry Reid is constantly messing with Senate procedure and not allowing some House legislation to come forward. Nancy Pelosi has whipped her colleagues into place. Mitch McConnell is doing the same and John Boehner has been busy shuttling ideas up to the president, who seems to throw them back in his face with a “bring me something else” mentality.

So get ready to go over the fiscal cliff. And don’t worry; it won’t hurt, until you hit the ground. Is the economy strong enough to withstand the evils of the cliff? Probably. Is the economy ready for the implementation of ObamaCare? I don’t think so.

One more thing, then I’ll get off the politics. Environmental Protection Agency (EPA) Chief Lisa Jackson announced her departure from the agency. I view this as a good thing, depending on who her replacement will be. EPA is without a doubt the most punitive agency of all federal agencies, even more so than the Internal Revenue Service.

Despite the lack of action at the Capitol, the cattle markets are still moving. After the first of the year, we should be set for a good run. Feeder cattle markets have advanced well through December and fed cattle are getting closer to $130. Deferred live cattle futures are offering a solid hedge for April cattle at $137 for March and corn has dropped below $7. Cattle feeders might have a chance to make a buck on their better performing cattle.

Andy Gottschalk at forecasts an annual average live cattle price of $128.50 to $130 during 2013. “Historically this would allow for an intra-year trading range of $120 to $143. We have also revised upward the intra-year range to reflect what should prove to be increasingly current fed cattle sector entering the second quarter of 2013. Realizing the accumulative decline in placements during the July, November period. This provides for the basis for a very positive price outlook into the first half of the year,” he said.

“The premium futures will attract cattle like a magnet. History is clear on this situation. Thus, marketing that cattle can be deferred will be deferred. This action will serve to limit selling pressure during the first quarter, but will also limit advances during this period. As such, both bulls and bears will be disappointed,” Gottschalk said.

Gottschalk is optimistic on calves and feeders going forward. “On October 1, the category of feeders and calves outside feedyards was down 237,000 head Y/Y. Reported October and November placements combined declined by 426,000 head. As such, the December 1 supply would be up approximately 200,000 head Y/Y. Unless December placements increase to absorb this gain, the January 1 feeder and calf supply outside feedyards should post a Y/Y increase. It is critical to understand that any gain is the result of the record cut in placements, not from growth in the calf crop. Thus the long term supply outlook for feeders and calves remains ‘Bullish’. As previously stated, if new price highs are to occur, they will likely occur later rather than sooner.”

But we can count on something happening sooner, it just remains to be seen exactly what effects the fiscal cliff will have on the economy, but we all know the feds need revenue and taxing rich guys isn’t going to get the job done. Therefore, I really think these politicians are ready to take the gamble on raising taxes for all. — PETE CROW