Shootin' The Bull
"Shootin' The Bull" is a daily futures and commodity market commentary, written by Chris Swift, commodities broker and founder of Swift Trading Company in Nashville, Tennessee.
With over 30 years of experience in the commodity futures industry, Chris's technical and fundamental analysis is provided for his clients and readers in an attempt to make a more informed trading decision.
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“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
I think cattle prices will be dictated more by consumer beef consumption than any supply/demand factor of cattle. There isn't much that can change the number on feed, but an increase in marketing's. So far this year, marketing's have remained behind last year. As well, even with a lower placement in May, the March and April placements will keep cattle on feed elevated through August. So, since there isn't much that can change the numbers on feed, something could be done with marketing's to help out the situation. Unfortunately, that would consist of an increase of consumer demand and, or exports. The US dollar index is hampering exports, so domestic demand is the one to watch. Since there is an abundant number of reasons for demand to slow, I'm trying to think of something to spur greater consumer demand. The only thing I can come up with would be some form of action taken against the energy markets that would cause them to deflate in price, producing more discretionary dollars to potentially spend on beef. Other than this, I anticipate this to be a long summer of sideways cattle trading and lower beef trading.
Feeder cattle futures traders are piling into the market. Monday, open interest in feeders has climbed to just over 49,000 contracts. While not a record, but off the lows by a good 6 to 7 thousand contracts. However, cattle feeders appear significantly less enthused by the rally and continue to pay less for inventory at present. So, what is transpiring? A divergence of basis. What happens at expiration? Convergence of basis. There will be 3 months and beyond to converge basis, so do not get overly excited about one direction or the other. I anticipate that while corn has taken a break from going up, feeders are breathing a sigh of relief. I think they will sigh about another $1.00 to $3.00 dollars higher, and then basis will have widened out again to a point in which convergence by a rising index could be a stretch. Especially when using the fence options strategy that producers even more leeway than the current premium of futures. No doubt, this strategy will no longer be of choice at some time, but for the time being, this strategy has performed as believed it would have. That being, marketing at a higher sale price than currently available, minimizing downside price fluctuation, and offering a predetermined higher marketing price were it to become available. Other than just flying by the seat of your pants, or allowing unlimited risk into your operation, I wouldn't know much else to do. Long story short, I anticipate some back and forth trading in feeders. Until I see how that back and forth trading unfolds, there isn't much to do at this moment.
Hogs were lower today. The index was up $.91 at $102.08.
Corn traded lower today. For the time being, I am anticipating a 5 wave move down from contract high. At present, I believe waves 1 and 2 are complete with wave 3 in progress. A trade down to approximately $7.00&1/2 December is anticipated. This would exceed the current low of $7.03&1/2, and still leave waves 4 and 5 to complete. So, it appears some time is needed to sort through planted acres, rains that have now fallen and all other aspects. Beans continue to be the market to laugh at instead of crying. South American beans being moved into deliverable positions, increased planting's, and bean oil believed topped just doesn't offer a bullish picture on beans. This leads to rampant speculation that traders are spreading corn/wheat trades to beans. I have no proof of this, other than hearsay and market price action between the commodities. I continue to anticipate beans to move sharply lower. Wheat took it on the chin today with rains spread far across Kansas. Whether it actually helps the wheat, or just short wheat traders is yet to be seen. I am not bearish wheat at all, so I believe this decline is a correction of the move from the $10.91&3/4 low to the $12.82 contract high. This is the move from the smallest of the red circles breakout. Potentially, it is only the wave 1 of the next most probable move. If so, this is the point in which traders could test the current historical high of Chicago wheat at $14.25, made March of this year. If the top is in, there is a lot of trading to have to go through before it is confirmed. December Chicago wheat would have to trade under $10.91 before I will believe the top has been made in wheat. If you are a bull, you may want to consider owning out of the money December call options. This is a sales solicitation. I would like more time for the wheat than beans due to bear markets tend to drop hard and fast, while bull markets tend to grind higher.
Energies remained mixed for most of the day. Since there is nothing being done to help encourage production or discourage demand, I continue to look for an oddity to transpire from this administration to pull the rug out from underneath the oil market. I don't know how, I don't know when, or even if they will do anything. I am only going by what the administration has done so far, with no accomplishments at all, and considering the desperation the party appears to be in, leads me to anticipate a desperate action. In my opinion, were something like this to materialize, I would view it as an opportunity to fill up those farm tanks sooner, rather than later.
Bonds were higher today with equities lower. The volatility is believed a precursor to things to come. That being a trend. It is possible that when the Fed meets in June, and won't meet again until September, they produce a path that increases the likelihood of a recession. The bonds would be going lower as that is the impact of raising rates. Equities would trade lower because inflation remains high, but supplies are pouring in now, creating a fire sale on goods. As well, more money will be destroyed, making it unavailable to buy stocks, keeping equity prices from rising. What a mess!