Live Cattle: Fierce competition between cattle feeders has expanded levels of risk to new widths. Whether dealing with a positive basis in the fats, or having paid premium for feeders, and only able to market into the future at a severe discount, the cattle feeder is assuming risks believed only relieved by a fat price that has yet to be discovered. My opinion is that vertical integration has been cemented by enough that it is causing those within to do whatever necessary to remain in, and those outside of, choices of whether to participate or not. If choosing to participate, the assumption of risk outside a vertical line is expected to be severe. Those within would be anticipated privy to risk being spread out along the lines of the operation and not just the cattle feeding portion. Of concern as well is the sharp decline of box price, suggesting that retail meat sellers are not nearly as bullish beef as cattlemen are cattle. Lastly, today's price action between starting feeder and finished fat widened to a new historical width via futures, and via the index, within less than $2.00 of the width high between the index and December live cattle. With backgrounders, and all other sectors able to hedge, market, or purchase LRP policies at an even basis, premium, or not too much of a discount, the risk of the cattle market lies squarely on the shoulders of the cattle feeder's ability to manage such egregious projected breakevens.
Feeder Cattle: Feeder cattle, and all sectors below are currently experiencing a marketing environment like no other. Cattle feeders are clamoring over themselves to own inventory, and assuming risks for which a finished price to profit from has yet to be discovered. As well, futures traders continue to provide producers with even basis, premiums, or only slight discounts to cash. Your problem is trying to pick a top, not be too early and get run over by what could be further price expanse, and attempt to be content with marketing decisions in full view of the hindsight of what could have been. Then, consider everything recently purchased and conclude how you will approach managing potential adverse price fluctuation in the future.
Corn: Friday's reports are not expected to produce much more than we already know. I remain friendly towards beans.
Energy: Energy was lower. I anticipate energy to trade higher.
Bonds: Debt instruments were mixed. Inflation continues and is expected to rise.
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
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 their 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.
