Swift Trading Co.

"Shootin' The Bull" Weekly Analysis...

  For the week ending February 15th

In my opinion, there are a multitude of factors to decipher when attempting to anticipate the next most probable move.  Pick just about any headline, and potentially it has impacted consumer discretionary spending, or movement of inventory.  While little of the news, or fundamental aspects of cattle, have been bullish, little has been bearish either.  The consumer is locked up tight in their homes due to foul weather and not seasonally in a time frame for increased beef consumption.  Cattle have been bombarded by poor weather and a significant lack of uniform or viable news.  Some I talk with have had the best weather ever feeding cattle while seemingly a majority have fared just the opposite. 


The development of this issue is changing my analysis.  What it is doing to it is minimizing the potential for a bear market.  Not to say traders won't hit to the downside, but all in all, there is going to be less beef produced this year unless more cattle are killed.  Most likely, the most supportive news going forward will be the reduction, or potential exit, of Australian beef to the world.  It is not so much the number of head killed this week due to flooding, but it was only after a two year drought that at the end of August, enough rain had fallen to suggest holding back heifers and cows in an attempt to begin expanding.  Now the flood, death of no telling how many animals, and the breeding cycle of those remaining changed abruptly in the impacted areas.  Australia is a huge supplier of beef to Japan and Asia.  They also supply the US with significant trimmings and grindings.  This is just my guess only, and not to be confused with fact in any way, but going forward, I would anticipate exports to dry up from Australia in an attempt to keep domestic product from skyrocketing in price.  Nothing technically has transpired that leads me to anticipate one move over another.  With it not being the time of year for strong consumer demand, the issue between an uncomfortable consumer, and an uncomfortable cow, is about equal.  Hence why cash or futures have not done much the past two weeks.  This is going to change as weather warms, and I think we will come into spring with fewer cattle on feed and at a lesser carcass weight. 
Traders have been able to put a little premium on futures over the index.  Seemingly though, it is difficult to keep futures elevated since the index does not appear going to be rising anytime soon.  Cash sales have been mixed and that does not move the index very much.  A trade of the index under $141.01 will lead me to anticipate the futures remaining soft.  A trade of the index above $143.66 and I will view that as a reversal.  As in the fats, my negative connotation is being mitigated.  I don't feel as strongly about feeders going to $133.00 as I did prior to these newest developments.  This does not mean that futures won't nose dive to $133.00. I just think there will have to be something else to materialize before that could take place. 
So, potentially there are a few more waves to go through before this sideways trade is complete.   May feeders will be interesting.  If there are cattle on grass that may be finishing in the May time frame, I'd lay a dollar to a doughnut that it would take a pretty penny to pull them off cheaper input costs.  Going forward, there isn't much likelihood of building a wall of cattle.  If anything, I think marketing holes will begin to show up.  I am starting to feel some foundations under the cattle market in general.  Again, this does not suggest a bull market.  What it most likely suggests is that a bear market may be more difficult to start or sustain due to the current change in fundamentals.  Volatility was high this past week and anticipated to remain through next week.  A trade much above this week’s high, per respective contract month, and it will begin to look friendlier. 
Grains have issues. One, there is a tariff of some kind, or overwhelming supply of everything.  Next, the strength of our US dollar is hampering export sales as well.  Tariff plus exchange rate makes for a costly US product.  Wheat appeared as one that might buck the trend of corn and beans since there are lower acres planted again this year and a poor start to the crop year.  However, not today as wheat set new contract lows in some months and tested it for others.  So, wheat probably still has some potential to the upside, but doubtful for corn and beans.  It appears that even though agricultural lending is hampering some, there won't be much of a reduction in total acres planted in 2019.  Weather scares are anticipated to cause significant volatility due to lack of human participation in futures trading.  I do not have any good plan of action to market grain inventory.  I will say that volatility is anticipated to increase significantly.  Therefore, one may use this volatility if marketing with futures or options.  Potentially have orders in the market at desired levels and let them sit.  One night they may get filled.
Hogs are attempting to firm.  Since I was so wrong on my up front analysis of them, I'm just slipping into the back end to try to stay long for as long as possible.  Energies pushed higher this week with March heating oil closing above $2.00 again.  I have stated this week that once above $2.00, this market may start to trade higher.  One may want to contact their fuel provider to see what farm tanks could be filled for.  Interest rates pretty much held their own this week.

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.