"Shootin' The Bull" Commodity Market Comments...
For October 14, 2021
Live Cattle: Cattle are believed to have benefited from the liquidity push and risk on attitude traders took today. This move higher today allowed for previous, and still recommended, fence hedges to be initiated at better premiums. I'm at a loss for direction. The rally with no increase in open interest is a little puzzling. It just tells me there is little interest in cattle at this price range. The negative basis spreads are beneficial, but in no way as advantageous as they were in August. That, coupled with so much risk having been laid off at higher prices, may be some of the reason for lesser participation. No change in processing speeds, cattle on feed, or consumer demand leaves little room for guessing a price direction for cattle.
Feeder Cattle: The higher trade in feeders produced some opportunities to spread short November and long March at levels that were deemed attractive. While none of the orders were filled at the desired price of - $.50, some chose to forego that level and filled from - $75 to - $.62. I continue to recommend this spread at the -$.50 level of short November and long March. This is a sales solicitation. The rally in the spring months is going to be welcomed with calf buying season upon us. I'm hesitant to lay off risk just yet. Were the opportunity to present itself to apply a fence hedge using short call strikes above $176.00. So, root for the futures traders to push basis wider, producing marketing opportunities today that may or may not be available in the future.
Lean Hogs: Hog futures were lower and the index was lower.
Corn: Grains were higher today. I anticipate grains to trade higher. The risk on attitude today in all commodities was welcomed. A comment from a colleague today was seemingly spot on. He said the grain markets were searching for buyers with the lower price. That seems correct as the increased harvest pressure, good weather and hefty yields have yet to turn grains markets into bear markets. While raw commodities are not necessarily in short supply, the logistics' and transportation issues are creating short falls. As this is taking place, more money is being paid to make sure their product gets in line, off the ship, or on the truck next. Like the packing plants, the realization of increased profits from keeping the slow pace is very beneficial. Therefore, why would they change the situation. So, while raw commodities may not necessarily be in the same inflationary mode as retail goods, they will feel the pull from more money chasing fewer products.
Energy: Energy trading was violent today. I anticipate further and increased violence of energy trading. Natural gas put on a show today, but closed close to the lows. I believe this is merely a backing up with the higher trade forecasting future direction. With a large portion of demand for natty gas coming from electrical generation, when increased heating days are needed, the pull on supplies are anticipated to be significant.
Bonds: Bonds were higher today and have breached the 160'00 level. A trade to 161'00 will begin a selling agenda up to 162'00. I am looking at two different factors for this decline. One is the rampant rate of inflation with interest rates the tool for the job. The other is simply following the Fed. When some of the Fed's presidents mentioned that they just happened to have sold their stock, at the top of the market, so as to not seem unethical, the market has not made a new high since. So, when they start talking about tapering, I believe them and so do others by the action already having taken place. A statement made by the Fed's Barkin today sent shivers down my spine. He stated, "It's striking how vulnerable America's supply chains are." I guess the past 20 years of increasing exports from China and decreasing production in the US just kind of flew over his head? All supply chains are vulnerable when you mandate hypocritical rules that benefit some greatly and the majority to bankruptcy. All supply chains become weaker when you expect someone else to do the job for significantly less and then have to ship the product over 6,000 miles on a slow leaky ship. These type's of statements, by supposedly highly educated people with significant information at their fingertips, leads me to believe this movie does not have a happy ending.