The Cattle Range Home Page
January 12, 2018
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."Shootin' the Bull" Weekly Analysis

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"Shootin' the Bull" Weekly Analysis

In my opinion, several pieces of information were gathered this week to help support my analysis that the current environment is less likely to produce a bear market.  Europe is on the mend as they have announced the reduction of quantitative easing sooner than anticipated.  This has pushed the US dollar to a new low in this decline at the close today.  Bloomberg posted an article on Friday reflecting the Chinese agenda of sourcing food for their people.  As well, China lifted a ban on French beef this week.  This action mirrors the lifting of the US ban last March.  Retail sales rose in the month of December and economists relayed this week that US employment is near or has reached a maximum.  This action has caused increased spending by the consumer and is anticipated to help absorb gluts of commodities. Interest rates rose sharply this week with the US 30 year bond futures setting a new contract low.  Rates are rising in reflection of the increased consumer employment.  Lastly, with fat cattle futures down more than $15.00, feeder futures more than $20.00, the feeder index down $14.00, boxes approximately $8.00 and cash fat prices down $5.00, and this being the worst part of the year seemingly for the negative's, there doesn't appear too much more to have to shave off price to keep it moving through the pipeline. 

At this time, I perceive the situation to be that prices in futures are declining due to lack of buying, more than overwhelming selling pressure.  The "money" that has shown up unexpectedly at times this year is thought to be on the sidelines.  I think they are waiting for spooked producers and bearish futures traders to push prices below value to get the biggest pop from the market when they decide to come back in.  I do not know what their trigger is, but I think they are already attempting to dig out a toe hold.  The environment appears at present to be more fat cattle related and that is with perceived elevated inventory to be marketed at present and the consumer having to deal with unpleasant weather in the north east. When markets reopen on Tuesday, half of January will be gone.  As seasonal tendencies begin to firm towards the 1st of February, I believe data revealed to that point will be friendly towards upward price movement.  Supply at this time is like kicking a dead horse.  I know it is there as does everyone else.  That in itself may reduce its impact.  
 
It's the feeders where I anticipate the first thrust to come from.  Now, I fully understand that the light cattle placed in October, November, and potentially December are in the pipeline and that may make for less demand in the spring.  However, were the demand to remain and numbers pushed out of lots in January and February heavy, we could see feed yards go bid for inventory weighing 900#.  This is where the excitement could be immense.  While there may be elevated numbers due to expansion, there may not be elevated numbers of 900# feeder cattle ready to go on feed to finish filling the pipeline this spring for summer fats.  As time goes on this year, the impact of expansion will be felt less.  Although I do not expect a liquidation phase, it could stay stagnant as demand grows or remains elevated.   One thing I don't expect is further expansion.  With interest rates increasing and most cow/calf operators still dealing with over priced heifers or cows purchased in '14 and '15, I don't see a ferocious appetite for expanding. My analysis suggests traders are beating out a bottom, similarly like they did in June and August of '17.  I would dare to say that March futures above $145.00 would spur some real interest in buying.  Especially if this were to come at a time when futures are crossing paths with the index and moving into a negative basis.  
 
The grain report offered no glimmer of hope in reversing grain prices at the moment.  Wheat continues to be on the radar, but it is a smoldering fire and no air at this time. 

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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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