"Shootin' The Bull" Commodity Market Comments...
For Thursday, August 22nd
Live Cattle: The $3.70 rally, after a $12.85 decline via October, is not much. The overlapping of waves keeps me from being bullish or believing the bottom has been put in. The seasonal tendency remains negative to the first of September. Friday's trade may be listless. Thursday's cold storage report and Friday's on feed numbers may provide some price direction. The aspects of the Tyson fire remain on the front burner as few know what is going to transpire now that the dust has settled. The cash trading today is not impressive due to literally no trading having taken place last week. Basis is even with August, about $4.00 positive to October and even with December. This offers literally no leeway in either direction you wish to move. I find it difficult to be bullish cattle or beef. Consumers are anticipated to see the recent box rise at their local grocery. When addressing competing proteins, this won't help to move more beef. Although yard managers may be disgusted by the recent price action, attempting to hold out may not be the best approach. This issue may still back cattle up to an extent that allows packers to continue to use the leverage they have. Changing the leverage suggests one has to change the location of the fulcrum. From the producers stand point, fewer cattle push's the fulcrum further from the power source and closer to the object being leveraged. Hence, allowing for greater force to be exerted. At present, the fulcrum is closer to the power source, causing the lever to exert less pressure. More cattle pushes the fulcrum closer to the power source, reducing leverage. As best I can tell, the fire did not shift the fulcrum away from producers. I don't see where it added any leverage to the producer at all. Where am I wrong on this?
Cold storage appears to be a 12% gain month over month and a 6% decline year over year.
Feeder Cattle: In my opinion alone, there is little trading going on in the feeders that has to do with feeder cattle. The width of price range is so great that traders are trading money, not cattle. Producers may want to be short or long, but the volatility and wide price expanse is most likely keeping traders on edge and that suggests few are holding positions. The slight increase in open interest to me only suggests some are trapped and trying to hold on for dear life. Lastly, what do I do if feeder cattle futures rally sharply from here? There is no difference today than there was when you applied the synthetic, or any short futures or long put option. That is because the majority of the positions were placed at significant higher prices. The index, which will be the most closely represented price to your location, is your only concern. Were the index to rise, you will swap open position equity in your futures trade for an increased value of the index. The futures settles to the index and regardless of how wide the basis swing get's, it will come back to zero at expiration. Hence again, the reason to market your inventory at the closest proximity to the expiration of a futures contract. So, since you made the basis spread this spring, that is your profit, not the fluctuation higher or lower. Now, here is what I hear and how I try to keep from making mistakes. We do not hedge for the factors directly in front of us. We can see those factors and adjust as needed. It is the factors we attempt to foresee, or do not know about, that we hedge. If you lift your hedge without having marketed your inventory, the next fire, flood, tornado, or Presidential tweet, that you did not foresee, could be the one that finish's you off. Absolutely, I could be wrong and feedyard's find a pot of gold and profits roll into them, causing them to go haywire over your feeder cattle and bid them back up to no telling what price. Then again, the current bear market trend, that is only 7 days and $9.25 from the contract low, after a 5 month bear market trend of $35.60, could resume.
Lean Hogs: Although still licking my wounds, with not much hope of healing them, I am commenting on the hogs. More so due to the aspect of the cattle. With nothing I believed having transpired, and the belief the information gathered correct, there is not much way I will want to participate in the hogs at this time. However, that does not change the bearish chart pattern that has developed since my trip to Kansas. A trade of December hogs under $60.75 would lead me to anticipate a resumption of the down trend.
Corn: There is a great deal of pressure being built in this years corn crop. Opposing sides continue to dig in their heels. At this price, and believing it may be difficult for USDA to present an even higher corn crop, it sure looks like the boat is tilted to one side. Bears may have all the way down to $3.00 before they would begin to feel as if there were not much left on the table. However, I think intrinsic value is somewhere north of $3.50. Were a decision to be made that reverses's EPA's stance, from which POET seemingly made decisions based on, corn may be able to shake off the last ten to fifteen cents traders took off recently. With the discrepancy seemingly unable to be broken knowing certain data, it leads me to look towards frost and or a wet fall that could inhibit harvest. Between these factors, and what ever ProFarmer can produce this week, is about all the information there is left that I can think of to move the market.
Crude: Energies sold off today. Although nothing definitive transpired, it does set the stage for a breaking out to the downside. A trade under $1.81 October Heating Oil will lead me to anticipate a breakout to the downside.