Shootin' the Bull about a lot to consider

Cattle & Beef - Close up shot of brown and white cow

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift


Live Cattle:

No rest for the weary in this market.  Nellie is nervous and with the continual issues of the bird flu being examined, there is likely to be more restraints placed until we can get a handle on this issue.  With the New York times having run a full article on this issue, the general public is more aware now.  With consumer spending already shifting uncomfortably, an issue such as this won't help to spur consumer demand.  When coupled with recognition that the agenda is working, producing more beef, the issue of fewer cattle is once again being pushed down the road.  The futures trader is believed very skeptical about producing premium for producers to market into.  The sharp decline in open interest is the clue that suggests fewer are interested in participating in the market.  The June contract is expected to retest the up trendline of the triangle.  A trade under $170.25 June would set the stage for a test of the contract low at $162.77.  A mere 10% decline in the cash markets from last weeks trade would put it at very close to this level of the June low.  I think when we get May's on feed report, and how it will impact the sharper decline in March, will help us to see what will be available through the third quarter.  The Fed's talking tough on combating the inflation, and with the actions already taken, it is making it tough for cattle prices to swim upstream.   

Feeder Cattle:

In 2014, the economic position of the US was producing a quantitative easing of interest rates, printing more money, and attempting to stimulate the economy at every turn.  Today, the economic position of the US is increasing interest rates, trying not to have to print any more money, and are currently discouraging stimulation to the point in which at some point, a more aggressive stance could be taken to quell inflation.  I want you to know this so if prices don't materialize to the levels desired, this reason will be one of the biggest ones there is.  With this knowledge, it appears likely that more lateral moves in cow/calf production will take place than expansion.  As the industry continues to discover how to produce more with what you have to work with, the less impact the shortage of cattle will have on price. 


All of the above suggests to anticipate further extreme volatility within a contracting price range.  In this scenario, I think you will do well to make some marketing decisions based upon price available, and leave the expectations of "to the moon" cattle prices to someone else.  Recall that at most current price levels of purchased cattle, regardless of weight class, have a profit margin based upon a continual incline of prices.  Stagnation, or consolidation will not help, and moving down will hinder.  Therefore margins based solely upon a higher price could be in jeopardy.  I think there are too many variables to pick a side suggesting higher or lower.  Hence why I think it important to market now, while basis remains somewhat favorable, and prepare for a time frame that may have a little more clarity towards a direction.   


There is a great deal of convergence of basis to take place before the expiration of the June contract.  Standing to day at a negative basis of $16.15, either cash moves higher, futures lower, or they meet in the middle somewhere. 


The above $4.70 area in December corn is believed resistance.  Traders have kept December above $4.70 for the past 3 trading days, but as today posted the highest trade since mid-April, and then closed on the low suggests the $4.70 range to get something done, if you are going to do something.  Which that seems to be the case, some farmers seemingly don't have to do anything.  So, if you are going to be proactive and market some grain, get it done now.  If you have no need to market grain, then consider selling calls at levels you would like to market corn or beans, and if not reached, you collect the premium. If reached, you sell the grain at the higher price. This is a sales solicitation. 


Energy is believed to have topped. Crude and diesel fuel were lower with gasoline higher.  Gasoline has continued to gain on diesel fuel, or diesel fuel selling off more than gasoline, but which ever one the change in carry for diesel fuel and believed starting in the crude oil, leads me to anticipate energy prices to trade lower. 


The selling pressure in bonds is more than interesting.  No insight at all is given by the bonds as to a slowing of the inflation, or having any impact on. I think a great deal of this is due to heavy government spending.  It takes a lot of money to feed, house, cloth, and clean up after the millions of illegal immigrants this administration has allowed to come into the US.  This is only added to the all of the previous government subsidies before this crisis even began.  So, debt on top of debt.  The rate of hypocrisy continues to impress me between legally binding a citizen to live within their means and the governments non restrictions on spending well beyond any ones means. 

This is intended to be or is in the nature of a solicitation. An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of the margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 


On the date of publication, Chris Swift did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.