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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

 5/29/2020

Live Cattle:

In my opinion, there are so many factors at play that no one can have much of an idea on the outcome of such a fiasco.  August futures have nestled into a well worn range between just under $102.00 and just above $96.00.  Traders appear hesitant to narrow the basis due to a belief that the $120.00 cash price is a pacification price that may or may not be there the next day. June will be the first test of the near $20.00 wide basis with 4 weeks to converge.  Live cattle futures are financial death traps due to such an enormous basis spread.  Cash can drop $20.00 and the hedger may or may not benefit any.  If futures rally $20.00, the producer has lost the $20.00 basis advantage.  I do not recommend using live cattle futures in the June or August contracts to hedge inventory.  With that said, the live cattle futures are perceived as the only derivative there is to use to help mitigate risk.  The October and December contracts are slightly different.  Not that they are any less of a basis risk, but the fundamentals of larger placements in May and June would push increased inventory into a time frame that may not be nearly as advantageous this year as in the past 4 to 5.  With there now being a case of wrongful death filed against Tyson, all companies, regardless of what is manufactured, will be subject to this same suit.  Therefore, companies will take extra precautions against this type of lawsuit, and therefore most likely discourage or halt company social gathering's.  Do not take anything for granted in this time frame.  Comments made by the Fed president's this week offer no encouragement of a resolve to this situation, with most sounding more like they are just talking their position.  I believe that were cattle prices to be further impacted negatively, it will be due to an economic factor impacting the consumer and not a cattle situation.  After reading multiple comments this week, it is believed that the backlog won't be worked into for several more weeks to come, with still not much of an outlet to sell that beef into.  Grocery stores are somewhat returning to normal as consumers have stocked up and some restaurant businesses open.  Consumer spending has plummeted and a wait and see mentality believed forming.  That is not bullish beef. 

Feeder Cattle:

Feeder cattle futures continue to be the only market offering a premium for product in the future.  My recommendation is to say thank you very much and move quickly to market inventory.  Using options strategies can increase maximum price and minimum sale floors.  It's up to you to take control of your marketing.  Whether you wait for what some one will give you in the sale ring, or you market now under known conditions, that decision is yours.  Like the fats, feeders are in a well worn range.  While in this range, option premium has contracted significantly.  One may want to consider legging into a synthetic short futures position, or potentially turn the one leg into a bear put spread, depending upon market direction.  As in, owning the put, while premium is not swollen, and then were prices to rally, or volatility premium increase, you could then sell the call.  Were prices to fall first, then look for an area to sell puts to create a window of opportunity and reduce the premium paid for the initial put option.  The market appears trading in a manner that is allowing for positions to be initiated without too much option volatility premium.  Were trading to pick up significantly, so to would option premiums.  I have little to comment on for market direction.  I am bearish, this a bear market, and I don't see much in the way out of this until packing capacity increases to a level in which feedyard managers believe they can get a kill slot without having to wait a month or two.  I anticipate a new contract low and a new low in the index.  I do not know whether traders push the issue now, or wait until closer to grass running out before decisions are made what to do next.  What I do know is that by making decisions now, with the premiums of futures and options strategies providing even more leeway in marketing, what ever the future price is, you will mitigate adverse price fluctuation and benefit from advancing prices until the index rises above its 20 month high of $147.44. T

Lean Hogs:

Hogs recovered before days end, but broke the previous low made earlier this week.  I anticipate hogs to continue lower. 

Corn: 

Grains were mixed this week with corn having a one day shot higher and wheat finally starting to look as if it is bottoming.  Soybeans continue to be hampered by South America's crop and continual strife with China.  I don't expect much in the grain market

Crude:

Energies continued to perform well this week.  I anticipate energy markets to continue to firm.  However, it may be difficult to make money trading oil under such volatile conditions. 

US Treasury Bonds:

Lastly, we saw the Fed's presidents become exceptionally vocal this week about their antic's of staving off inflation after having increased the balance sheet by 66.6% in a mere two months to 7 trillion dollars.  As stated above, all that I heard was them talking their positions.  Bonds softened over the week.  They did close higher on the day Friday, but they appear poised for a significant decline.  What I am hearing is banks and lenders not offering any great rates with the Fed window at zero. 

 

Futures trading is not for everyone. The risk of loss in trading futures can be substantial; therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not indicative of future results, and there is no assurance that your trading experience will be similar to the past performance.