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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.

The Mid-Day Cattle Comment is a market commentary written during trading hours, providing subscribers with pertinent, real time information to help readers make a more informed trading decision. 

 

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“Shootin’ The Bull”

Commodity Market Comments

by Christopher B. Swift

1/22/2021

Live Cattle:

In my opinion, cattle futures are telling a significantly different tale than current cash.  The optimism in futures has pushed the negative basis as taught as I think I have seen it in several years.  With it no doubt that the basis can be converged by either the cash market moving higher, or futures lower, it really does not matter which one transpires, or the combination of both moving towards convergence.  What matters is the width of negative basis that may, or may not, be available when the time frame you are marketing in arrives.  As stated, multiple times recently, capital requirements are going to be extensive in every manner.  Whether it be input costs, labor, or margin requirements, capital is going to be in greater demand for production.  I believe using the seemingly extraordinary negative basis to help secure a higher price in the future, while maintaining a higher minimum sale floor, will be of benefit to producers. Again, I am unsure of the significant desire to pay such a hefty premium in the future, but there are those adamant to do such. 

 

Production cycles are changing.  I noted that in my webinar a few weeks ago.  Although Fridays on feed report will help to determine market ready inventory, the semi-annual inventory report will show a longer-term cyclical trend of a declining herd size.  Hence the need to freshen the herd becomes more apparent.  I have seen the spreads between heifers and steers narrow recently.  The lower placements of heifers suggest the freshening is transpiring.  Were the drought to break in the range areas of the mid-west and northern mid-west, I would look for holding back of heifers, or purchases of, to increase.  Traders are foreseeing this and bidding paper higher until the physical market can catch up.  The only problem with this is, the cash market does not have to catch up.  

 

At present, the negative basis in the summer and fall feeder months is as wide as it was back in 2014.  I do not have a clue as to whether basis will be converged by futures moving lower, cash higher, or meet somewhere in the middle.  What I do have a clue to is that when marketing inventory, one looks to the highest price.  This week, the futures market is the highest price around, in any time frame, to sell cattle into.  Prepare for extensive capital requirements for margins, and big bottle of aspirin, because I don't think we have seen the main show yet.  That could be the acrobats flying high, or the tent collapsing. 

 

Grain prices sold off hard by weeks end.  I believe this sell off to be a wave 4.  Of what magnitude remains unknown at this time.  The undertone of demand remains in the grain market and when the Algorithmic traders believe they can scalp as much money off the table as possible, they will do so.  I anticipate grains to continue to trade higher.  The current correction in price advance is urged to be used to book feed needs. 

Feeder Cattle:

Lean Hogs:

Corn:

Crude:

US Treasury Bonds:

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.