Swift Trading Co.

"Shootin' The Bull" Commodity Market Comments...

For Wednesday, February 13th

Live Cattle: Mother nature has shown her wrath as of late on everything.  While the weather has been immensely difficult on livestock, a quick view of the current weather map shows large swaths of the northeast still being pummeled with snow and ice.  The impact on consumers is perceived more so than on cattle. This will change, but I do not know how abruptly.  Note that February and April are the ones taking the brunt of the blow.  This is front end meat that isn't currently being well received by the consumer.  No restaurant or grocer wants to become a cold storage facility.  From the most recent changes in fundamentals, I want to cover short call options were April to break to or  under $125.75 with an outside shot at the January 7th low of $123.50.  Were this to materialize, it would produce the $3.00 to $5.00 lower move and cause me to lift all short call option positions.  I would keep the puts and maybe even sell puts below to continue collecting premium and change my risk structure.  If prices roll higher from here, I will continue to look for an opportunity to swap synthetic short futures positions to short futures positions.   
    
Feeder Cattle: Due to cattle and beef being traded in pounds, and there is perceived fewer of them, it leads me to reduce the potential for cattle going into a bear market.  So, were feeders to take a like $3.00 to $5.00 break lower as in the fats, then I will look to make adjustments that will allow for greater profit potential were prices to recover.  Until we see what the next $3.00 to $5.00 move is, I'm content to do nothing at this time. 
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There are factors at play that are anticipated to produce a stronger priced market going forward.  First is the elevated heifer and cow kill.  Second is that previous prices over the past 5 years, coupled with increased interest rates and input costs, the likelihood of expansion is not very good.  Next, will be the two year drought in Australia, followed by this weeks flood. They may be out of the export beef business for a couple of years.  This could open the door to fewer imports and potentially increased exports.  Lastly, I have not seen any fundamental change in our economy.  Wages and employment both appear to be still growing.  Not if, but when, seasonal consumer consumption rates increase, there may be the same amount of beef to supply them with, but it may have taken several more head to produce the same tonnage.   The Moore research seasonality for August feeders is pretty much flat in February with a small blip higher towards the end of February.  March is pretty much stagnant as well.  At the first of April though, the seasonality turns north and pretty much stays that way until expiration.    

 

Lean Hogs: Hogs were mixed.  From the small amount of data available on this up move, I believe a minor wave 1 has been completed and a minor wave 2 is in progress.  A trade down to today's low of $76.67 June would be viewed as a buying opportunity.  A trade above $78.15 will confirm minor wave 2 complete and minor wave 3 in progress.  At present, with data available, the minor wave 3 target is calculated to $83.60.  
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Corn: Wheat was higher today.  Although very little data is available, but from what is, it appears that a minor wave 1 and 2 are complete and minor wave 3 in progress.  A trade above $5.35 July will lead me to perceive a reversal has been made. 
 
Crude: Energy was higher today. Heating oil broke out of the 20 day range to the upside.  This begins to dash my hopes of a $1.80 target.  A 50% retracement of the decline would put March heating oil back to $2.0350.  Any purchases that can be made under that, considering retail mark up, then you have at least captured 50% of the decline.  Only hindsight will prove correct or not. 
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US Treasury Bonds: Bonds are lower today.  A softening tone on Friday's government shut down and the March 1 tariff deadline may be what is keeping commodities from moving lower.  It sure felt like some humans were trading on Tuesday, and today they are gone.  I wonder if they will return on Thursday to window dress before Friday's shutdown comes or goes?  Bonds are still in the wave B.    

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
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