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
What happens if the next shoe drops? The next shoe being a hiccup in the economy. Beef demand is no doubt robust, but that can change as well. I am not as bullish the economy as some are. I see higher interest rates coming now with the change in the Fed's verbiage. Combined with the massive debt attempting to be passed, I see no way out. Of the most important factor to me at this time is that I believe the US dollar will decline significantly and rates will rise, driving bond prices lower. Today, Fed president Evans stated that, "accommodative monetary policy doesn't require zero fed funds rate." I take this to say that the fed is going to try to head off inflation by raising rates, while letting the dollar fall to keep stimulating the economy. I think that is like holding the snake with one hand and trying to pet it with the other.
Next, food processing companies, that deal primarily in livestock meat protein, have all joined in on vegan protein production. ADM and Tyson have announced significant ventures into processing and production of vegan protein in the past two weeks. This is a little worrisome in the future as when the pendulum does swing back in favor of the livestock producer, the packers will have potentially created a new revenue stream that is not reliant upon livestock production.
Lastly, with packers seemingly in no hurry to slaughter cattle, what will transpire were the producer to be put into a situation of having to move inventory due to drought or financial liquidation. Recall that the two most impacting events were both tied to packing problems and it was to their own benefit to get back up and running as soon as possible. Drought or financial woes are the issue of the producer and not the packer. Hence, I do not foresee what would cause the packer to suddenly increase slaughter rates as financial incentive appears to be with slaughtering fewer animals. Yes, this is all pretty much gloom and doom. I am all ears for a brighter forecast for livestock producers.
Futures traders are wanting another dose of basis spreads handed to them. With futures pushing higher today and corn pushing higher, the poor cattle feeder has not much else to do but throw up. I am sure there are some deep pocket loyalist that will jump into the sale barns and bid higher for product. If they do, sell it to them. I do not know if the drought will persist and force more inventory into slaughter. I do not know if or when lenders will pull the plug on loans outstanding. I do know that the current environment of an already established drought and a financially weak producer increases the odds of negative impacts on feeder cattle prices. Now, bucking the odds can pay great dividends when correct. If you can over come paying $66,275.00 for 50,000 pounds of feeders based on today's feeder cattle index, and add $37,725.00 for May corn at today's close, plus local basis, you will need a finished fat price that brings in $104,000.00 on approximately a 30,000 pound gain. Looking at the October board at $1.2302 times 80,000 pounds brings in $98,416.00. That does not include anything else for a rousing loss of only $5,584.00 or 5.3% loss on your investment. Again, I know that I am preaching gloom and doom. I am not doing it to be critical or demeaning. I am doing such because it appears as if few are. Absolutely the industry can pull itself up by its own boot straps and increase leverage to the packer that makes him squeal like a pig, but probably not today.
Hogs continued higher today. I pulled the trying to catch a falling knife trick this morning and recommended selling July hogs with a buy stop to exit only at $115.00. This is a sales solicitation. Technical indicators are leading me to attempt selling hogs. It has yet to be fruitful or without pain, but I do believe that if correct, the bounty will be plentiful.
Grains were higher today. I made some moves late on Wednesday before the close. The new contract highs, seemingly bolstered by the shot of cold weather in the north, were made on weakening technical indicators. I don't think this is the top yet, but some interesting factors developed today with the Fed's new verbiage and were there to be a money dump in equities, I don't think commodities would fare well at the forefront of an equities sell off. Higher rates will begin to impacting housing and therefore potentially lumber. In my opinion alone, just about every business is working on borrowed money with most highly leveraged. I don't think that if we are going to live off the government, the government has that much money. They are dooling out trillions and stating they need more. I am spooked, and unfortunately believe that contracting in discretionary spending will be of greater importance than increasing it. This administration is not weaning the subside/stimulus monster off the teat, they are encouraging it to suck harder.
Energy was higher for most of the day, but began selling off at the close. The new contract highs set the stage for the wave 5. Whether complete or not, higher energy prices may begin subside.
US Treasury Bonds: