Live Cattle: The manipulation of production and processing continues. Hindsight continues to be a reflection of what could have been done. The foresight, unfortunately isn't as clear. In my opinion alone, and not to be confused with fact, is that the spread between the optimism of the producer, and the street signs of the economy, are believed as wide as I can ever recall. Jack-in-the-box fast food restaurant announced it is closing 200 poorly performing stores. Wal-Mart has begun locking up their meat at the counter, and fast food restaurants are reeling from lower traffic and exceptionally high beef prices. The industry is changing rapidly in front of us. With hogs, it was driving them drastically below the price of production. In cattle, it appears the opposite of by driving prices drastically above profit margin capabilities. Only a dramatically higher price will return the input costs currently associated with placing cattle today. While I have been frowned upon, disagreed with, and argued with, I continue to believe that vertical integration is taking place, and with the size of capital requirements, it appears that maybe more than just corporations are in the hunt for market share.
The poor basis position towards cattle feeders is of grave detriment, even though most every contract month is at, or near contract high. This goes back to when corn was at $8.00 and three years out was at $5.50 and today, three years later, corn is closer to $4.50 than $5.50. Hence, even with a very distasteful basis, you may actually be marketing at the highest prices available to you in the back months of futures.
Feeder Cattle: I have been recommending to own the $285.00 August feeder cattle puts for a speculative position. This is a sales solicitation. The obvious is, as long as August remains above $285.00, the option will expire worthless. A 10% decline though would put these options in the money, with August down to around the lows made in February of this year.
With hindsight 20/20 and foresight questionable, I continue to believe that averaging marketing's up, will be of more benefit than having to average marketing's were prices to soften. Unlike the fats, futures traders are instep with the index, offering a very beneficial basis environment to lay off risk into the future, regardless of price direction.
Corn: Corn was firm. I anticipate corn to move higher. With planting fixing to hit its stride, I anticipate a firming market until all is planted.
Energy/Bonds: Energy has been volatile again today, however, it is firmer. I anticipate energy to continue higher. Bonds were firm as well with notes tagging along. Equity share prices are sharply higher as the Presidents comments continue to be volatile, creating immense volatility in the market.
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. .
