"Shootin' The Bull" Weekly Analysis...

For the week ending November 26, 2021

In my opinion, the cattle market remains firm.  Aspects of production leads me to believe there won't be a time frame in future for which past placements will be burdensome.  I do anticipate cattle feeders to have a desire to place more cattle in December and January, but may not be able to due to availability and price.  Neither will make any difference to those within vertical integration as they are under contract to deliver a specific product, regardless of the cattle feeder's margin.  This leads me to anticipate a firm bid remaining for feeder cattle. The simple change of, lesser inventory no longer taxing packing capacity, has done wonders to shift leverage towards cattle feeders.  With more packing capacity coming on line, more robotics' replacing labor, and ability to custom process more cattle, I find it difficult going forward for inventory to tax packing capacity.  With it seemingly as though the fundamentals are improving for cattle, that still leaves the rest of the story to be written by the consumer.  My best take on the consumer at the moment is that they like complaining about inflation, but are still spending at elevated rates.  With another bout of inflation on the horizon, cattle may appreciate a little more, but beef demand pull back just a little.  Recall that this year, we learned that beef prices have nothing to do with cattle prices.  I believe that going forward, this will work in reverse.  It won't matter how much the packer is losing per head, they have contracts to meet. 

Backgrounders are suffering from loss of basis on the front end, and beneficial premium out 9 months that is difficult to manage financially.  The rising index reflects the demand from cattle feeders.  The futures are seemingly not going produce previous beneficial premiums for backgrounders to market into.  There is evidence the breeding herd has been impacted significantly this year.  More cows to slaughter and heifers on feed is believed going to run head long into a lot of open cows in the drought impacted areas.  Going forward, this leads me to anticipate a two to four year cycle of higher cattle prices.  No, they won't go straight up and yes there will be some hefty corrections.  However, there won't be much, if any, expansion to take place until at least the middle of spring to see if the drought is broken.  This factor, when coupled with a lower birth rate in the spring of '22 will make for some really short yearling inventory in the spring and summer of '23.  Throw into this mix if expansion does start sometime in the spring of '22, the holding back of cows and heifers will make for an instantaneous shortage of cattle to the packer.  With all of the above focused on cattle and production, it does leave out several factors of feed costs and consumer demand that will no doubt impact prices to some measure. 

Grains continued higher this week as input costs are soaring and potentially weather going to be a significant factor going forward.  In an inflationary environment, there tends to be the mindset of holding on to things that may not easily be replaced, or an increase in purchase's today in an attempt to thwart the higher prices in the future.  Both continue to fuel the flame of inflation.  I do not foresee inflation being tackled for months to come.  That is because the Fed continues with stimulus with only a minor taper, zero percent interest rates, and no attempts at all to encourage production of commodities or letting inflation run its course.  Therefore, I anticipate inflation to grow at a steady pace with bouts of surges.  I am focused intently on the next move of the US dollar index.  I believe that a trade above $.9694 of the dollar index will suggest the administration continuing to combat commodity inflation by increasing the exchange rate, making it more expensive for those importing our grains. I believe that a trade below $.9554 of the dollar index will suggest the administration has passed the social spending bill and will print money for the cause as quickly as the ink can be drawn and paper cut.  However wrong I may be, I do not believe that the wealthy, rich, billionaires, or any corporate tax increase will pay for these measures.  As well, it could take years to restructure the tax laws and collect those taxes to pay for the measures.  Therefore, I would anticipate firing up the printing press to pay for these measures and then worry about how to "take" money from others who worked and assumed great risk to acquire it.  Long way around the barn, but if the dollar is flooded, I would anticipate this adding further strength to the grain markets.  If they do not, and manipulate factors to cause the dollar to rise, in an attempt to quell inflation, then I will still anticipate higher grains, but maybe not quite as high. 

I finally have read others comments that lead me to believe I am not as disoriented as I thought I was.  No one else seems to be able to decipher the Fed's wishes to quell inflation, stop the taper, raise rates, and have commodity prices move lower for the consumer. All the while, interest rates continue to be low, and are lower this week, as well as the MBS and bond buying practice continuing.  I liken it to something similar to this: you are in pain, but the one inflicting the pain has told you that they won't inflict quite as much now and maybe even less in the future.  Instantly the brain senses some relief, but shortly afterwards, the pain that is continually being inflicted remains.  I think this is what consumers are experiencing.  The pain of inflation is real. Then some relief comes when it is discussed, but yet hurts like hell when they stop talking about it, because they continue to apply the pain of inflation.  Jerry Clower said it the best when John Eubanks had climbed a tree after a coon and ended up wrestling a souped up wildcat in a tree.  Upon a few minutes of commotion, Jerry would holler "knock him out John".  Soon the commotion grew and John hollered down at Jerry and told him to just shoot up here amongst us, one of us got to have some relief.   I think the current administration went after one thing, ended up with another, and someone needs some relief.

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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