Live Cattle: From what little I could decipher from the Fed's minutes, it appears that weakening employment was the reason for the rate cut, but the lower rates may further weaken the US dollar and spur more inflation. I look at it similar to this. During the Covid dole out, if a business had ten customers, they could charge each one the same. Today, that same business only has five customers and still needs the same revenue stream as when ten were doing business. So, the business increases prices to make up for the loss of the other five that are no longer employed. That is what I believe is taking place. To beef, every restaurant and grocer needs the same number of consumers willing to spend at the same levels as previous to generate the same revenue. As more consumers are unable to afford beef, which we may have been seeing all summer, prices rose for those who could still afford. Going forward, were anything to impact the spending ability of those still employed and still able to afford beef, it would be anticipated for beef prices to fall sharply. The past few weeks have seen beef prices drop sharply, suggesting that maybe there are not as many still willing to pay the higher price or consume more. With beef prices declining, at least for the moment, it leads to anticipation of a trickle down effect for which packers have already begun to seize by lowering bids for cattle. Packers are anticipated to pull out every stop to lower cattle prices, and cattle feeders are still going hard at bidding up the price of inventory via the feeder cattle index. When combined with the widening basis spreads, cattle feeders are believed elevating their assumption of risk to levels for which no amount of hedging may help. I anticipate the need for significantly more working capital to manage the risks being assumed to produce a pound of beef.
Feeder Cattle: Futures traders are digging deep tiger traps in the spring. If, and that may be a big if, but if demand is starting to weaken, what would exaggerate the market the most would be an increase in supplies of cattle from down south. Traders are believed eyeing the spring months for which would be the most impacted by the border opening. Don't think for one second that this issue has gone away. Last Friday and Monday's price action is believed tied directly to thoughts that Secretary Rollins could say something about the border opening, but when did not, traders pushed prices back to the same levels as prior to the event. These are significant price swings in exceptionally short periods of time. Option premiums are inflating due to volatility, but expensive, simply due to the value of the contract. Let that sink in that you are in possession of a very expensive commodity for which history will prove can be halved in a very short period of time. With new lows from contract high, in most every contract month, and some going to close at a new low from contract high, suggests to anticipate further downside price movement.
Corn: Corn was a tad lower and beans soft. I recommend buying November '26 soybeans and buying the $12.00 November '26 soybean calls. This is a sales solicitation. Soybean farmers are urged to own the $12.00 calls in an attempt to take advantage of a potential to market inventory on a higher cash trade and still be a participant were further gains to be made through a limited risk derivative.
Energy: Diesel fuel fell back a little today, offering end users a slightly lower price from Tuesday. Crude was soft, but not by much. I anticipate energy to trade higher. If it does, it most likely will be due to an event outside the US and not US consumer demand. The reason the Fed lowered rates is due to weakening employment and that is not bullish much of anything. Therefore, bullish factors would most likely corm from further escalation of foreign matters.
Bonds: Bonds were able to make another new high on the announcement. Equities have been exceptionally volatile and the US dollar came to within 15 tics of a new contract low before correcting a portion of the losses the past few days. With the news out, I anticipate bonds to form a trading range until we can see what impacts the rate cut may have.
Christopher B. Swift is a commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "Mid Day Cattle Comment" and "Shootin' the Bull" commentary found on his website @ www.shootinthebull.com
This is intended to be or is in the nature of a solicitation.” Futures trading is not for everyone. The risk of loss in trading futures can be substantial; therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not indicative of future results, and there is no assurance that your trading experience will be similar to the past performance.
