"Shootin' The Bull" Commodity Market Comments...

For May 18, 2022


Live Cattle: Traders are believed to have taken the Fed's Powell at his word today.  Traders sold everything in preparation for higher rates and less money to spend.  Energy was lower today as were grains and just about everything else.  

Fats were weaker today as the up coming on feed report is anticipated to reflect more cattle on feed, more placed, and maybe about the same marketed.  I have a feeling that any negative reaction to this will be short lived.  I say that due to the discount of futures in June and August already reflecting the larger on feed number and increasing weights to come.  However, it is already looking as if placements will slow in May and possible June, leading to a potential lower number on feed when heading into the fourth quarter.  I recommended today to not be short the October and December live cattle futures contracts.  This is a sales solicitation.  Cattle feeders are believed going to have to continue to fight for margins, whether inside or outside of VI.  If calf, stocker, and feeder cattle prices rise to the levels the bulls anticipate, it will accomplish two things.  One, it will complete the bulk of vertical integration, and two most likely reduce the price fluctuation in cattle prices.  At first, the onslaught of buying feeder cattle, it is possible that prices reach a level in which there is no return on inputs from the sale of a fed steer, or possibly a loss.  This will begin to either draw more into the fold of VI or push them away.  Second, as VI increases, it is anticipated that cattle feeders will continue to deal with high feeder prices and other input costs, yet proceeds from sales of fed cattle and percentage of beef sales will most likely narrow profit margins.  Recall the reason for VI is to strengthen the supply chain, so fewer disruptions occur, keeping supplies plentiful and prices steady.  The producer likes the price fluctuation due to desire to profit from.  The retailer likes prices to remain dormant due to the desire to profit from continual consumer purchases.  If you see the industry shaping up in some form or fashion that differs from my opinions, I would greatly appreciate you sharing them.  I like to know others opinions so I can weigh my own against them. 

Feeder Cattle: Most futures contracts set new lows in this decline today.  With the index now falling it makes it more difficult for the bulls to defend long positions.  The index is starting to trade lower.  Even with corn lower today, the futures just couldn't mount a rally, as they have multiple times before.  I believe today was a good day to wrap up buying back short call options, selling out of the money put options and just basically trying to keep from getting backed over when or if the market turns. I remain perplexed as to how low the index may go.  It is as possible that the index stays within the range and completes a sideways pattern, or dips lower to complete the currently anticipated move.  What may occur as well would be that if corn and fuel were to trade low enough, the futures market could rebound while the index is still moving lower.  Then, sometime in the very near future, we see the index finally start to rise.  Buckle your seat belt and hang on, this is fixing to get really interesting.  

Lean Hogs: Hogs were mixed, the index is down $.17 at $99.90.  I think this is still a wave 4 correction taking place. 

Corn: It appears this years bean and corn crop will go in the ground pretty much before June.  As this was a significant issue last week, it is fading this week.  It is still way too early to call a top on corn.  At present, the $7.03&1/2 low to current contract high is the most important part.  A trade under $7.03&1/2 and it will suggest that major wave 4 is in progress.  Were corn to stop most anywhere before $7.03&1/2 and go on to make new contract highs, then further upside potential will be anticipated.  Beans close to the same way, but once corn is in, beans will go in very fast.  Wheat remains an issue, but with the Fed threatening to pull the rug out from underneath inflation, and some rumored talks about negotiations in the Russia/Ukraine conflict, wheat may have some downside pressure.  With wheat only, wheat farmers are recommended to be looking at booking July of '23 wheat with either your elevator or out of the money puts to help stave off a price decline were a huge seeding to materialize this fall.  I think there is some time needed to go by to see what transpires next.   

Energy: Spooked.  I think that is the best way to look at how markets are reacting to Powell's statements on Tuesday.  Again, my opinion only, but I took it as if to say recession before inflation.  As the Fed continues to increase rates, in an attempt to pull money from the system, traders are selling the things they bought at really high prices in hopes of replacing them at a lower price.  Oh, and don't forget that the administration needs to buy a bunch of oil, so it actually makes sense they would do every thing possible to try to get the price down before buying.  At the very least you would hope so.  At the moment, energy may have some sideways trading to go through before pushing higher.  With gasoline and diesel fuel having made new contract highs within the month, and crude oil having closed at a new contract high this month, I am not nearly as bullish as I was a few weeks ago.  I recommend you burn through the earlier purchased fuel and then look to refill tanks after planting is over, or wait for sometime this summer to refill tanks for harvest.  

Bonds: Bonds are higher and equities are sharply lower.  Bonds are believed to continue to unfold a wave 4 as higher bond prices will suggest the Fed could achieve driving the economy into a recession.  Equities are sharply lower as markets feed on money and the Fed is telling everyone that money will be more expensive and in less supply going forward.  So, if you want money, you sell the stock, not buy it.  However wrong I may be, I continue to believe that a majority of that 7.5 trillion went into the equities market or other investments.  As those investments were purchased at a really high price, and now they are losing those gains, they will sell those investments and stock to salvage what they can.  Lastly, it may be possible that sentiment is changing against the current administration from within.  The blaming of others accomplishes nothing and that is about all this administration can do.    


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.