Live Cattle: Cattlemen are anticipated to use the cheaper feed stuffs to increase weights, simply because they sell cattle by the pound and at the price spreads between weight classes, they will need all the pounds they can get. This production scheme is anticipated to carry all the way through to slaughter, making cattle even bigger than last year. Worries of the tightest first quarter cattle supplies continue to be on the front burner. With over 11 million head on feed consistently for years, I am unsure this will have much of an impact. If there is any impact, it will only be that there remains too much processing capacity for the number of animals available. The dramatically negative margins are plaguing this sector of the industry, leading me to anticipate further manipulation of slaughter levels to achieve a higher box beef price, and or a lower fed cattle price.
Price fluctuation has been significant, causing some industry sectors to incur massive losses, some massive profits, and most now incurring massive projected losses at the onset of purchase. The basis improved greatly today in the April live cattle contract. With new highs from the November low, price, plus negative basis spread, makes marketing cattle today attractive for delivery in April.
Feeder Cattle: All of the above exposes too much production capacity for the number of animals available. Feeding cattle longer and heavier, regardless of weight class, creates a slower turnover. The amount of price advance is believed going to keep cattle already purchased growing longer, instead of reverting back to volume, as there is no more volume available to the open markets. Vertical integration has taken tens of thousands of head off the open market, but continue in production. Those outside of VI are bidding for less inventory and there apparently still remains considerable production capacity. Price extremes can be beneficial in short runs, but long term price extremes tend to reduce or increase production to a point in which a reversal in price is warranted. These are extreme prices for all weight classes of cattle. I anticipate a bubble being formed.
Futures traders helped a little, but continue to keep their distance from having producers market in the futures, instead of in the cash markets. As cattlemen continue to expose themselves to more risk, management of that risk becomes even more crucial. The new highs today suggests minor wave 4 complete and minor wave 5 in progress. Of what larger magnitude remains in question, but with the completion of the minor wave 5 in progress, at the very least, a sizable correction of a larger wave 4 would be anticipated. If found to have only been a 3 wave move, then the recovery high is in and trip back down to the November lows will be anticipated. Were I to have misinterpreted the count again, it is possible this spike ends in 3 waves and not 5. This wouldn't be difficult with a few changes of the move down. Long way around the barn, but the significance of price gain, in a very short period of time, leads me to recommend making another marketing move. Whether that is hedging newly acquired inventory, or rolling up previously purchased options or spreads, I recommend you use the current price advance to market inventory before this week is over. This is a sales solicitation.
Corn: All lower as the supplies are burdensome in comparison to the demand. Although demand is needed, cuts in acres would do more good than anything at the moment. Note that burdensome, as well as shortened supplies can have the same impact on a reduction in production capacity. The farmer and cattleman needs to cut production. A cutting in production of row crop acres would lower supplies and potentially increase prices. A cutting of production of cattle would lower the number of participants bidding and potentially lower prices. At present, both markets are at extremes. No doubt that issues are never so bad that they can't get worse, were either to take place, higher cattle or lower grains, anticipate a quicker response to what's ailing a particular market.
Energy: Energy soared higher today. Still unsure why, but regardless, it is trading higher.
Bonds: Bonds have created a triangle within a triangle with only a few tics either way to start a breakout. The one tenth of one percent lower CPI didn't impress markets at all. Bonds fluttered, but then simply just went sideways. I continue to anticipate bonds to trader lower as inflation continues and there remains more effort to stimulate than tackle inflation. Were crude to turn south again, commodity inflation, barring the metals and cattle would be in a severe bear 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
This is intended to be or is in the nature of a solicitation.” Futures trading is not for everyone. The risk of loss in trading futures can be substantial; therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not indicative of future results, and there is no assurance that your trading experience will be similar to the past performance.
