The Cattle Range Home Page
November 21, 2017
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. "Shootin' The Bull" Commodity Market Comments

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Commodity Market Comments 
  • “Shootin’ The Bull” -- Christopher B. Swift.
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    Live Cattle: So, in this on feed report, it took one trading day to negate its impact as most all contract months have traded above the high post report.  Now, I don’t think this just sets the woods on fire initially.  There could be 6 weeks of back and forth trading before anything definitive is created.  What I would continue to consider that has helped me to stay focused, even when my gut was churning, is that nothing has changed the current status of the consumers discretionary spending habits.   Redbook retail sales were quoted this morning as up 4.1% week ending 11/18 vs. a year ago, up 3.0% first 3 weeks of Nov. vs Nov year ago, and down .7% first 3 weeks of Nov vs. Oct.  So, while this is not beef, it is an indicator of the health of the consumer.  They continue to spend and therefore, beef would be anticipated to, at the very least, not be impacted negatively.  The wave count remains unchanged.  The major wave count suggests major wave 3 remains in progress.  Intermediate wave 1 completed at the most recent contract high, and intermediate wave 2 still in the works.  Intermediate wave 2 may have found a bottom price, but could spend a couple more weeks trading sideways before resuming the upward trend to new contract highs.

    The worry on everyone’s mind is demand collapsing and leaving the producer pool full of inventory.  Absolutely this can happen.  I don’t know of any way to out guess the consumers spending habits as no one came close to guessing they would be as aggressive towards beef consumption as they have already been this year.  I know supply is elevated.  I can see the numbers.  I’ve seen them all year long and dealt with the aspects of the issues the increases can cause.  What I have the most difficult time assessing is why so many believe the consumer will shut down on consumption when it appears they are just starting to get their appetite back.  So, long story short, I know the supply could be burdensome without the current demand.  What I also know is that demand has not slowed as of yet and that opportunities are upon us that if missed, could be as devastating as a market decline of significance.  Long story short, use options, have a positive attitude, and look for signs of further improvement in the economy or signs of it backing up.

    Feeder Cattle: Elevated cow kill and heifer placements throughout the year is anticipated to have either mitigated expansion or potentially turned it south into mild liquidation.  Either way, it leads me to anticipate numbers to grow shorter with potential marketing holes of significance going forward.  Here is a great “what if”.  What if it is now March or April and similar price action to 2017 has taken place.  Prices through the winter gravitated higher and then shoot higher in the early spring due to what ever you wish.  By then, it will hopefully become apparent that exports are real and growing.  Potentially, even domestic demand may have improved as well.  There will be a call to go out into the industry for more inventory to meet demand.  The day that call goes out to the time the first steak is placed on a plate is approximately 3&1/2 to 5 years.  Look at when the call went out to expand.  It was late ’12 and early ’13 as the call went out that too many cows had been culled during the drought and more inventory was needed.  Today, at the end of ’17 we’re now getting what was asked for 4 years ago.  Stay with me.  Now, when or if the call goes out to expand again, two things will materialize.  The first will be the mind set of,  “I did that once and got my head handed to me, I’m not going to do that again”.  Hence you now have the first issue of a percentage of producers that won’t participate.  The second thing that will happen is cows will be held back along with heifers.  If you look at time frame around April of ’14, you see the results of having held back cows and heifers.  That is when the US began importing huge amounts of trimmings from other countries to meet the grindings for hamburger meat, which became the most desired beef product due to the high prices.  Lastly, Australia is having issues of attempting to hold back cows in some areas and liquidation in others due to their drought.  Combine all these issues and there is one thing for sure, the year of 2018 could hold a tremendous amount of volatility and price expanse.

    Corn: The oscillator is moving back towards the zero line again.  The slow stochastics are turned north.  The price is bumping its head against what was once support, but now resistance.  A trade into the resistance, and it will begin to look as if corn has found a bottom.  Of most interest is how weak wheat remains with such a poor crop rating.  Any hint of moving old crop stocks would be a huge benefit.

    Crude: Energy is moving back higher again.  This time it is the gasoline and crude leading the way.  Of interest though is that the diesel fuel retraced the least amount, but didn’t quite have the strength its counter parts did today.  I think there may be some issues with gasoline at the moment.  I don’t know if it is elevated demand or potentially some supply issues created from the hurricanes.  Either way, gasoline is higher and all three appear ready to resume their upward trend.

    S & P 500 Stock Index: Equites are no longer treading water.  For what ever reasons the bulls came out in full force today and barbequed the bears over an open pit.  Of the most significance to this is that at the very least, the consumer is not fretting over their 401k plan.

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    Christopher B. Swift is a commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "mid day cattle comment" and "Shootin' the Bull" commentary found on his website @ www.shootinthebull.com

    An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

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