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.
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.
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.
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.
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.
& 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.