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.
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“Shootin’ The Bull”
Commodity Market Comments
by Christopher B. Swift
This week started off a little different than the past few. Follow through from Thursday's buying pushed most contract months to the previous May high. A trade through the May highs won't necessarily turn my bullish, but were it to transpire, then get busy marketing inventory going into the fall of the year. With basis now significantly negative, there are few reasons to not use a synthetic short futures position to lock in a price that may or may not be available in the future. I have little to go on considering the next most probable move. The wave count is strewn with 3 wave moves and significant overlapping of waves. Since the wave count at present shows the C wave higher than the A wave, it would not be uncommon for the E wave to be higher than the C wave high. This is what I am not sure that if new highs are made that it could be just as easily the top of a massive sideways formation, or potentially the break out to the upside some are anticipating. Exports have room to improve due to the price of beef having come down. Domestic demand remains questionable. Limited restaurant seating and opening's continue to hamper beef sales. It will take a few more days to begin to see what movement was like. I get the feeling that grocery stores may have over ordered with maybe a few more restaurant's having been opened and therefore taking some of the grocery business away for this past weekend. I noticed a large display of meat proteins on the managers special case.
The Moore Research shows feeder cattle topping this week with a seasonal tendency to trade lower into October. This not the first time we've seen the futures market rally sharply against the index and produce an exceptionally wide negative basis. Whether that is the case this year or not, a wide negative basis is not uncommon. This is one reason for the use of the synthetic short futures position over a short futures position. That being, your realized losses do not begin until the underlying futures contract trades above the short call strike. As well, in order for the futures to sustain the rally, the index will have to rise, and that is perceived of great benefit to the marketing of your cattle. I can already feel hedgers being prompted to act with the rally in futures. Most want to release the bird in the hand and try for the two in the bush. If you chose to do so, you will solidify the loss of current position and may or may not be able to better a position, or get another one on to begin with. I am having a difficult time recalling a time frame over the past 4 years in which basis went positive and cash proved to have been the highest price paid. To my recollection, it has been that futures made the highs, cash rarely ever moved to the extent of the futures level, and ended up converging basis by a combination of both futures and cash moving to one another, instead of one moving dramatically to the other. This years basis to August has been minus by as much as $17.00. Currently at minus $7.14, I could see it maybe going out to minus $12.00 were futures to get hot and heavy. I do not anticipate them getting that way, so a width of minus $10.00 may be a good spot. Today's index reading was lower to $128.98. Were the index to creep down to under $128.00, it may signal some early movement in inventory.
Hogs were slightly higher today. The price action from contract low to present does not lead me to believe the bottom has been put in. There are nearly 8 weeks left of summer with no further holiday's and food service entities limited. Fast food burger places have not advertised their sandwich's with bacon to the extent they have in years past. At this juncture, it is almost going to be obvious which ever way prices move. If they move lower, then of course they should because we continue to raise too much pork. If they move higher, then of course they should because consumer demand may return and AFS has continued to decimate Chines pork production. I believe that were traders to push pork futures to new contract lows, it would be a terminating move to the wave count.
Corn is holding its own with beans at the moment. Were there to be a rally in grains, due to weather, I think this will be the week. A rally from here would lead me to believe that corn is still in wave 1. If so, then a rally of $.25 to $.30 is still anticipated. Were traders to pull December corn back to $3.45, then it would lead me to believe wave 1 is complete and wave 2 in progress. Were that to be the case, it would lead me to anticipate a much larger rally than were prices to start higher from here.
Energies were mixed. Gasoline was the weakest as holiday travel will decline going forward for the summer. I anticipate energy to continue to firm slightly.
US Treasury Bonds:
So, which will the Fed do next? Keep shoving the coal to the fire or let it settle for a little while to see what kind of heat has already been generated. There will have to be a time at some point in which the Fed pulls back and takes a lookie loo as to what they have done. You don't want to get to the end of the field and see that you didn't have your seeder down. The bond market price action leads me to anticipate them pulling back some on the bond buying program. If so, this may be what the futures are waiting on to move lower. I continue to believe inflation is running rampant at the retail level, all the while, the Fed is trying its best to increase inflation to every other aspect of our lives.