the Bull" Weekly Analysis
my opinion, it has been perceived for several weeks now that the rising
futures markets were influencing the cash trade. This week, the packer
pulled the rug out from underneath the futures market by trading on Tuesday
and at a dollar lower. This evaporated any influence the futures
may have produced through the remainder of the week and the extent of being
caught off guard brought December futures down $4.60 from Tuesday's close.
Add the $3.00 that came off the top just prior, and the move down has been
a little over $7.00. Interesting that the impact was muted on all
the back months until Thursday and Friday. From the information gathered
this week concerning further distribution channels formed through Chinese
retail giant JD.com and the Montana Stock Growers Association, it appears
the markets are drawing dividing lines. Those lines are between front
end elevated inventory and now the loss of momentum, and the back end believing
demand will remain, and potentially elevate at a time when inventory could
be strained. The futures markets began reflecting this when the 1.2 billion
dollar deal was struck this week.
spreads have actively worked in a bear fashion as front months traded lower
the most. It has worked with fats and feeder spreads as well.
Those have been stronger feeder prices against weaker fat prices.
This factor is anticipated to stay with us for some time. While the
front end will have to deal with the holidays, beyond the first of the
year, I would anticipate fat prices to sustain the current elevated price
with advancements as supply & demand factors unfold. The loss
of momentum helped to clarify the wave count as well. It didn't change
anything on the major wave count that remains in a major wave 3.
What makes it really tough though is the separation between contract months.
Variances within fat cattle months makes the intermediate and minor wave
counts differ. Believing demand will continue leads me to stay with
the more friendly wave count in the back months and stick with the same
strategy. That being, if you need to market inventory, then do so.
However, do not be short the market just for the sake of being short.
years ago, the US came out of quantitative easing and began raising interest
rates. All but a few commodities bottomed early in 2016 and made
some type of move off the bottom. By early 2017, the only markets
that persistently remained low have been wheat and corn. The healing
of the economy increased disposable income and therefore spurred greater
discretionary spending. Today, we see energy prices at new highs for the
year, metals and meats at elevated prices and even soybeans elevated from
previous lows. The increase in demand is perceived to have begun
to slow the price decline due to gluts.
weeks ago, the ECB began reversing their quantitative easing actions.
Potentially this signals a healing time frame in Europe. Were Europeans
to begin enjoying an increase in disposable income, and therefore increase
discretionary spending, commodity prices in 2018 could move another tier
higher on the price scale. I am unsure why so many are anticipating
an economic down turn in the US with only approximately only 18 months
of improved economic environment. It could improve for years.
So, don't be so quick to think that commodity prices will move lower when
the European continent is just now righting its ship out of the negative
interest rate spiral. Also, I would be careful attempting to equate
the stock markets value to economic performance. Yes, it does provide
some sense of security to see ones investment or retirement portfolio at
the top, but economic vitality is not always accompanied by a roaring stock
cattle are anticipated to have the most to gain. While this year
has been a fat cattle cash led rally, that may switch some with the current
events. Fats may struggle just a little while longer to get through
the current glut. However, going forward, the likelihood of having
significant increases of inventory in 2018 is diminishing. As hard
of a pull as demand has had, I can see where some holes may begin to appear
where there just aren't quite as many at a specific weight range as once
thought. Remember two that with exports, the inventory will have
to be sewn up quicker as exports are different than domestic trade.
A truck or train can be delayed or rerouted to meet a demand, even if a
day or two late. However, when the ship leaves on a specific date
at a specific time, there is no room for error.
year long more development has taken place towards creating infrastructure
to move US beef across the sea. These lines of distribution are costly
and not created for a one time ordeal. So, while many are focused
on the present, and some supply burden potential, I recommend focusing
on sourcing your inventory for next year and conduct business as usual.
Feed yards are urged to be taking advantage of this weeks price decline.
It hasn't been much, but would potentially make buying calls a little easier
with the tail winds. Recall the intermediate wave 3 target is at
$172.00 and were major wave 3 projections to be met above $190.00, call
options would help mitigate the price advance. The positive basis
will help to as there remains an approximate $3.00 to $4.00 positive basis
to the spring months.
the grains got pummeled again as USDA just keeps increasing yield.
The good part of this is that the extent for which they raised the last
yield on corn suggests they may not be able to raise it any more.
Therefore, we know what the crop size is now and the work to chew through
it begins. That may not be as difficult with increases seen in energy
usage and livestock feed. I'd like to thank Marlin Bohling, John
Jenkins and RFD-TV for inviting me to comment on Monday morning's Ag Day
show. This has been a great experience and the folks there are sincere
in providing quality information.