"Shootin' The Bull" Weekly Analysis...

For the week ending March 24, 2023

In my opinion, the cattle market traded status quo this week.  It is being found that the reservation shown by cattle feeders, to not bid up prices, growing them bigger, with packers maintaining a slower, but steady slaughter pace, and retail meat sellers keeping prices elevated to the consumer, has helped to keep profit margins in these three sectors, while not pricing more beef out of consumers reach.  The consistent 11.5 to 11.7 million head on feed for over 8 months is an impressive feat.  Until closer to May or even June, when heavier slaughter pace would be desired due to grilling season, I don't think we will see much change in the number on feed.  Going forward, I anticipate the genetics to allow for considerably better performance of feed conversion, especially when weather improves.  This will help to offset a percentage of the loss of cattle.  Packers seem well in tune for this event, having improved rail capacity to handle the larger carcass frames.  With retail meat sellers keeping the price elevated to consumers, it is keeping them from increasing consumption or willingness to pay more. So, looking through the spectrum, there appears little to anticipate for the moment in price movement. 
Backgrounders have seen the reservations made by cattle feeders, but most likely won't be able to mimic when it comes time for them to replace the next load of inventory.  There are a lot more producers at the levels of backgrounders and under.  Therefore, with more fighting over them, the more likely the price will exceed expectations of what would be desired to pay for.  Futures traders are getting a taste of basis the past two weeks.  As the cash market has stalled, the futures continued higher, widening the basis to widths potentially difficult for the cash markets to reach.  Hence, we have seen some convergence of basis recently and I anticipate more.  While I don't anticipate market action to follow the seasonal tendency to the letter, I do expect further weakness into April.  As the popular video sales begin to warm up, I would anticipate the seasonal tendency higher to form.  Whether this will set new highs for futures and the index, or simply sideways trading, no one knows.  I have taken the stance that if you did not like meeting margin calls, or in fear of missing out on something by being hedged, now is your opportunity to make adjustments.  Both sides are anticipated to benefit from this pull back in price.  The bulls are being presented with an opportunity to purchase the premium ladened futures for a little less than a few weeks ago.  Bears and hedgers have an opportunity to adjust positions well away from contract high at the moment.  So, both sides should be able to appreciate the most recent retracement in price. 
Grains have seen significant activity in trading this week.  At the start, farmers and weak longs started selling and created a snowball effect.  The plowing lower just kept collecting more and more bulls on the way down.  By Thursday's low, it appeared that the desperation selling may start to conclude.  I recommend on Thursday to cover all short positions in grains and to anticipate a wave 2 correction.  By Friday's close, grains were sharply higher and seemingly well on their way to forming a significant wave 2 correction.  I anticipate grains to firm up to the March 31st planting intentions report.  What they do then will be determined on how many acres and which crop gets the most or least.  Wheat is a funny market at the moment.  Seemingly it is dictated by Russian propaganda, "bullshit" in layman's terms.  Early this morning, news hit the wire of halting grain movement out of the Crimean Sea.  Wheat rallies forty cents in just a few minutes.  Later in the day, the Russians changed their mind and wheat falls thirty cents.  So, if you are trading wheat, consider that you will have to deal with this over and over again.  From a hedge standpoint, this rally is believed a marketing opportunity.  I anticipate all grains and oilseeds to produce some form of corrective rally before resuming down trends. 
Lastly, the raising of interest rates, and banking fiasco of recent, has produced significant volatility in debt, currency, and financial markets.  It is almost obvious that the consumer will continue to deal with both inflation on one hand the recession on the other, with both seemingly equal in the problems they are causing the consumer.  All of which leads me to anticipate no increases in discretionary spending habits anytime soon. Energy has been volatile as well this week.  At the moment, I remain somewhat bearish due to the recessionary aspect.  On the other hand, I would not rule out a surge in energy prices that would not necessarily be from an event in the US, or US economy.  So, energy is a little perplexing to me.  I did make recommendations this week to top off farm tanks or book at least half your fuel needs for spring planting.  Diesel fuel is approximately $.40 less than when I made the last recommendation to do such. Going forward, I anticipate the price of debt to move higher as more investors are anticipated to seek a safe haven over assuming risk in this economic environment.  This will be lowering rates towards the public as the swift march of rates higher, in the shortest time frame ever, has done some damage that will need time to fix. 

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
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