"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.
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.