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”
Commodity Market Comments
by Christopher B. Swift
I see some light at the end of the tunnel. The major wave 3 is believed complete at today's low. It will take a trade of June above $85.00 before confirmation that major wave 3 is complete. A great deal of the unknown factors from this virus are becoming known. Acclimation to the newest environment was nearly lightening speed for consumers. Packing capacity has been disrupted as well with several unknowns of labor shortages and slowing chain speed. Just as consumers acclimated to the situation, so to will the packing side of the industry. There is more likely some additional inventory to market due to the issue exposing some stress than would have been had the virus impact not been seen. It is here though and I think after this week, the packing side will have a pretty good handle on how slow chain speed will be and to what extent to anticipate labor shortages. Then, they will go to work improving where they can and begin to alleviate some of the backing up of packing capacity. Hence, I think this is why only the April locked limit down. It is a fundamental function that can be resolved, it will just take some time.
If correct on major wave 3 terminating, it leads me to anticipate a major wave 4 correction. I do not anticipate this to be a significant price retracement, but more marking of time until we see how much more acclimating the consumer does. Back months will be interesting as by that time, the packing issue should be worked through and there will be anticipated fewer cattle on feed in the third quarter due to low first quarter placements. Were a vaccine to be found, I believe the improvement could be significant. Nonetheless, this issue has been stressful and stress exposes weakness. I anticipate more cattle to be marketed and killed than marketed and moved latterly. The dairy industry is going to increase cow slaughter going forward. Marginal producers, not necessarily financially, but those that raise cattle or row crops on marginal ground, or where it takes increased feed costs to support production, may consider input costs or lower returns as reason to exit the business. It will be difficult to convince me otherwise that the industry is likely going into a liquidation phase. Were cattle trading and prices to recover, I would anticipate some difficult decisions to be made on the viability of cattle production on your home 40 before this fall. Carrying cattle into the fall of 2020, where social distancing has become the norm, fewer Christmas party's, fewer family gathering's with the grandparents for fear of health reasons, and food service just starting to regain lost ground, does not lead me to anticipate a very friendly consumer environment for a raging bull cattle market. There will be further shortages, or slower chain speeds to have product reach the consumer. This disconnect will most likely continue to push retail beef prices higher and live cattle prices lower. Slower processing speeds will be an issue going forward for some time to come.
Feeders are backing up as well, but some did move last week. About 2/3's of this time last year's inventory moved last week. This probably represents the lions share of commercial yards under vertical integration. What is being left out of the mix are the smaller sale barn cattle and those that are just marginal. I know I keep using that word, and I do not mean it to be critical. It is just a fact of this industry that some producers don't always take certain steps that others might. As well, smaller pastures means more supplemental feeds, and that increases cost of gain and lowers margins. I am watching for more heifers to be placed on feed and when packing capacity increases slightly, more cows as well. I recommend using the time frame of major wave 4 to set parameters for marketing fall and next springs inventory.
Index was lower and futures were higher by the close.
Corn was lower today. The new lows lead me to anticipate a correction or reversal of this decline.
Crude continues to unfold a wave 4 correction. I anticipate further downside movement in energy prices.
US Treasury Bonds:
Bonds were lower today. Potentially, bonds may have produced a huge trading range for which they will mark time until some of this issue begins to subside.