Morning Mote: Beef Prices on Pro Trader's Menu

What’s for dinner? Not beef, at these prices. Fast Money’s Brian Kelly was watching the price of cattle futures Tuesday morning after wholesale choice grade beef hit a 10-year record high of $1.88 per pound yesterday.

Kanundrum Capital’s founder was seeing anecdotal evidence of food retailers passing on the price increase, leading him to speculate that the consumer price index may start reflecting higher inflation sooner than the market has priced in.

“In the last few days I have had several friends and family members ask me what is going on with meat prices – seems like people have some sticker shock,” said Kelly. “It appears higher prices are beginning to hit stores.”

Kelly sees real supply and demand dynamics leading to the price increase. The cost of feed has risen sharply in the past year, with corn futures up nearly 104%. That has led cattle farmers to slaughter cows earlier – before they breed – resulting in relatively low meat stocks. There are fewer cows now than there were in 1970, explained Kelly. The thin supplies have fueled a 20% rise in feeder cattle futures in the past year.

Consumers have little choice to eat higher prices, said Kelly. With even budget chains such as McDonald’s are planning to pass along increases to consumers, it’s difficult to get around the cost increase.





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Trader disclosure: On Mar. 22, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Steve Cortes is Long (TM). Steve Cortes is Long (GS). Steve Cortes is Long (CSX). Steve Cortes is Long (SDY). Steve Cortes is Long (EXC). Steve Cortes is Long (SO). Steve Cortes is Long Crude. Steve Cortes is Short (F). Steve Cortes is Short (C). Steve Cortes is Short (UNP). Steve Cortes is Short (DBA). Steve Cortes is Short Wheat. Steve Cortes is Short Soybeans. Steve Cortes is Short Corn. Steve Cortes is Short (CAD). Steve Cortes is Short Euro Vs. U.S. Dollar. Joseph Terranova is Long (C), (GS), (VRTS), (PNC), (USB), (JPM), (DIS), (CVI), (CNQ), (UPL), (CREE), (MS), (PBR), (BAX), (TEVA), (MCD), (RSX), (BM), (BTU), (CNX), (POT), (FCX), (XOM), (CVE) and (SU)

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