In my opinion, Wow! What a week to be in the cattle industry. Good, bad, or ugly, this will be a commodity run for the history books when it comes to a US produced agricultural product. Cattle feeders out did themselves all week long fighting over pen space as spreads between starting feeder and finished fat widened to widths for which the deepest pockets are maybe finding a bottom to. Most of my comments this week were simply stating I had no idea of what one would go to, with the answer having been, whatever it took. I mentioned that barring a reopening of the border or improvement in Brazil tariffs, this fire would have to burn itself out, as no suppressant used had much impact. The unfortunate of that statement is it suggests a contraction of production and processing capacity. As well, I've mentioned the volatility of the President and how his actions can and have impacted other markets. Well, Thursday afternoon, the black swan, everyone knew was there, swooped of its perch and right into the thick of the matter. What I don't know as I write this is "what"? What is the black swan? Reduction of tariffs? Opening of the southern border? Deals with Australia and or New Zealand? All of the above?
As well as having stated the above, I made as solid of an argument as I could to maintain hedges, roll up anything that can be, and add to whatever new inventory you have recently acquired. For the time being, or until a new contract high is made, this week's high is believed the top of the bull market, and the final 5th wave magnitude of a major cycle, with all culminating in a blow off top for which producers inhaled negative margins like another cow was never to be born again. Whether the President's impact will be the suppressant that extinguishes the bull market, or just stirs the fire for a few weeks, it appears that the issue of cattle and beef supplies, causing significant price increases to consumers, has caught the attention of the President of the United States of America and he, like eggs, and so far most everything else stated he would accomplish, is doing something about the price of beef, and therefore cattle. His track record so far suggests to not bet against him.
Grains are having a difficult time going lower. With the most expensive inventory on feed in history, fixing some variable costs may not be a bad idea. Energy is believed in a bear market now with lower prices expected. I anticipate more recessionary factors to materialize going forward than inflationary, but maybe the lingering stagflation is what keeps the US moving towards recession. Remember "transitory" inflation? Bonds are moving higher, even though begrudgingly. Equities continue to amaze as a leak develops and bulls are quick to repair and reinflate as quickly as possible. To watch the machines trade in that market is quite a sight to behold. I hear more often of the two-tiered economy and how much the upper tier's spending is offsetting the middle and lower portions of the second tier not spending. I hear more often that a great deal of the money sloshing around is tethered to multiple derivatives for which that nasty aspect of unintended consequences comes to mind very quickly. I hear more often of the bubble AI is creating. The energy use of is phenomenal, along with the data banks to support the infrastructure and mining of bitcoins on a computer like playing Mario Brothers video game and collecting tokens for which somehow a value was placed on them. I never will forget that in the movie about Bernie Madoff, they were sitting in his office laughing at all the people screaming about losing money as the stock market plummeted and the hosts on the financial channels wondering how Bernie will do, when all the while, not one cent was ever invested in the stock market. It was pure Ponzi from the start. Nonetheless, lastly, watch the movie, "The Big Short" I've referenced it a couple of times this week as to the text book example of how a market can remain irrational for longer than one can remain solvent. I feel the cattle market is in a nearly identical situation.
Christopher B. Swift is 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.
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