From Our Side of the Fence

EMCC Owner/Partner

Last month I was determined to be positive and concentrated on all the good news I could think of. This month will be different.

So it appears that the cattle feeding segment of our industry is doomed and cursed. I guess after last month’s article this is the place where I would say “I told you so” but I have to admit I did not know I would be so right so fast.

Who would’ve ever thought that a flu virus coming out of China could cripple China, the world economy and our beef market all in is less than 60 days.

Last week the latest and greatest in a series of black swan events has occurred. Friday, the April fed cattle futures closed limit lower running from nearly $1.28 a few weeks ago down to $1.07.

As this paper is printed on Monday, we’ll see but I am afraid we have not seen the bottom of this collapse. I cannot emphasize enough how bad this will be for the cattle feeding segment of our industry. Cattle Feeding is the engine that pulls the train and it is about to be derailed. Unlike the Holcomb fire, the Coronavirus spreading is a very real problem for our industry.

As the Coronavirus moves into two of our largest beef export markets, beef demand in South Korea and Japan are expected to be slashed because obviously without consumers traveling, going to restaurants feeling prosperous and safe they are eating out a lot less. Apparently a quarantine is extremely negative for beef demand, even more so than for other competing proteins.

Although not as deadly as some recent pandemics, this Coronavirus is fearfully unique in its ability to spread and infect a massive population quickly and stealthfully. If 70% of Americans contract this flu, a vast majority will recover but a death rate of even only 1% would lead to over 2 million American deaths (330 million x 70% x 1%). This is why our domestic beef market is susceptible to decline and will undoubtedly also suffer.

Although heavy cattle have been severely discounted, the good news is so far the calf and light yearling market --which most of you are exposed -- has been stable and in some instances for grazing and growing type cattle it’s actually been pretty good.

The best-selling category last Tuesday and Friday would be predominantly black hided steers from 425 to 625 lb with the 6 weights in the $1.60’s and the 4 weights up into the $1.70’s. Many believe after six months, this virus problem will be passed and any slowdown in consumption will be rebound with a surge of pent up demand. This is sure possible, but for now I am not sure how long this spring market will stay elevated.

Hope Springs eternal and I can’t help but believe that heading into 2021 with the virus crisis behind us and with much lower inventory, that the cattle markets will finally be much better. I’ll temper this optimism by again saying that until we solve our packing industry problem our business will never be as good as it should be.

Let’s move on to another problematic issue.

Simon Mikhailovich; “The record for fiat currencies through history is 100% eventual failure. The record of gold for 5,000 years is 100% lack of failure.” (Co-Founder Eidesis Capital)

For the first time in history, all of the world’s currencies are fiat and all governments are printing money to pay their bills. During inflation it appears a hard asset’s value increases, but what really happens is the value of gold for example is stable, but the number of dollars it takes to buy an ounce of gold increases because the value of the currency is actually decreasing. Cattle, land, gold n silver are all good “hard” assets in our current precarious situation.

Why did the world’s central banks ditch the gold standard? Without the discipline that comes with currency tied to a stable monetary metal, (historically silver and gold), central banks have the ability to issue an unlimited amount of credit, thus earning an unlimited amount of interest.

Federal Reserve is again “quantitative easing” -- that means money printing which today means money creation digitally. Mathematically we have reached a point where the Federal debt is so large the U.S. treasury can’t afford “normal” interest rates. If the fed funds rate increased to a normal 3%, it would raise the cost of debt service approximately $1 trillion per year. The dollar will continue to depreciate via inflation.

This dollar devaluation is extremely bullish for real assets like land, cattle and other commodities, gold silver and other precious metals etc. This scenario is multiplied exponentially because quantitative easing (money printing) is taking place in nearly every developed country in the world simultaneously.

I’m bringing this to everyone’s attention because I believe relatively soon (3 months or 3 years?) something in the fragile global financial system is going to break. As with any avalanche, all we need is a trigger to start the cascade. Gold’s price in 2019 hit all-time highs in every currency in the world except for the US dollars. Gold did however recently cross well into the $1,600 range. It seems that silver is temporarily lagging behind now priced at only about $18 per ounce. Silver may be the better investment opportunity this year. Historically the gold silver ratio was set at 12:1 by the Romans but later set at 15:1 by the U.S. mint in 1792. Today, with $18 silver and $1600 gold that ratio sits at approximately 88:1.

I’m not smart enough to completely understand how all this works, but I’m aware that this topic is rarely discussed by our nation’s bankers or leaders. You can only kick the can so far down the road before you get to the end of the road.

“Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants, but debt is the money of slaves.” Norm Franz (economist/author)

As one of millions of debt slaves, I’d like to touch on cattle relative politics a bit. Looks like this fall with the disintegration of the Democratic Party we will have no real choice for president... however....

As I see our industry and lives of people in this business being robbed and destroyed by the greed of multinational corporations, I can’t help but develop sympathy for the socialists. Don’t get me wrong or misquote me because of human nature, socialism as a method of governing doesn’t ever work. Crony capitalism doesn’t work either. The thought I wish to share is this. Due to the economic hardship caused by tariffs during the Chinese trade negotiations, the Trump administration has absolutely taken care of farmers with annual $60+ per acre indemnities.

Cattlemen however, although not suffering from Chinese trade issues, are being devastated by mostly foreign corporations predatory monopolistic practices, allowed by American trade policy. It appears we cattlemen have been abandoned by our government and our misinformed consumers.

This feeling of being overwhelmed by economic injustice is reinforced by the lack of justice and accountability with all things involving our political ruling class – both Republican and Democratic. No one has been prosecuted for corruption and I see a justice department/FBI unwilling to prosecute their own. I hold out hope that Barr/Durham can remedy this lack of justice and prosecution of the corrupt. Those politicians who literally sold out their country are traitors and should suffer the consequences. Time will tell.

Good news now. Even though I’m becoming a grumpy, cynical old man I still find myself shining when the sun does. Hanging on. Spring will be here soon and grass will replace the mud. Optimism springs eternal.

That’s all for this month. I’ll see you at the auction.