Live Cattle: Believed excessive competition for the number of cattle available, or at least being made available, to process is why fat cattle prices are moving higher. The expansion of processing capabilities, produced by the Biden administration, continues to cause packers to pay more for fat cattle and consumers to pay more for beef than were there fewer competitors. Hence, the most simplistic answer I know of in forming a top is, until someone goes out of business, the rally will continue.
Feeder Cattle: Believed excessive competition for the number of cattle available, or at least being made available, to produce is why feeder cattle prices are moving higher. The expansion of production capacity, primarily in the north, continues to cause cattle feeders to pay more for feeder cattle. The acknowledged segregation of profit margin calculations between those in and outside of vertical integration is a part of this, due to a belief that the north has aligned itself more with vertical integration than the south. With the domestic herd lower, the loss of the imports from the south is believed disproportionately impacting southern feedyards. As much as many want the protectionism, it is anticipated to cause some to be unable to compete at the current amount of capital required to compete. Hence, the most simplistic answer I know of in forming a top is, until someone goes out of business, the rally will continue. I can't imagine that this is what the industry, as a whole, wants. Unfortunately, I see very few ways around this as everything the President is doing so far in this realm of the economy has decreased the amount of cattle, increased the price for imported beef, increased the price to consumers, and is attempting to increase the price of corn to help out farmers. While there is no doubt in my mind that incentive to expand is the main goal of the higher prices, an unfortunate aspect is that not all will be able to hold on for long enough to allow the cow/calf producer, making the most they ever have selling calves, to stop making that money and reduce their income for 12 to 18 months until another sale can be made, so more cattle can be made available. The price has risen exponentially due to competition for fewer animals available to the open market. Since most producers have adamantly told me there just aren't going to be any more cattle, then I see no other way for a break in price to take place without more inventory being made available, imports of cattle and beef, or the competition for cattle declines. Neither at this moment seem on the cusp of materializing. Therefore, an out of the blue increase of inventory or decline of production capacity would be anticipated to cause great disruptions in price. Lastly, no one anticipates either and all are on the table that most can see.
All of the above leads me to believe there are aspects of inherent risk that can't be managed. However, you can manage the potential for adverse price fluctuation and may be one of the few ways to remain in business, were any of the above factors to change, or multiple factors I can't even think of.
Corn: Feed and feedstuff's may be plentiful, but they are far from getting cheaper. Harvest may help when bringing in new supplies, but seemingly a lot of corn has been priced, and the Trump administration is under pressure to bring demand to the corn and bean market. Although I am not bullish corn, I am not bearish either. I anticipate beans to trade higher.
Energy: Energy was higher today. I was expecting a lower trade in energy. Nonetheless, I continue to believe this rally to be a correction of the initial move down. I am unable to get bullish energy just yet.
Bonds: With bonds lower today, the cattle feeder saw expenses rise for everything needed but the cattle, and they weren't down that much. So, the higher rates are still lingering and with new home sales higher last month, the discrepancies for lowering rates continues. Bonds remain in their triangle with expectations of moving higher, out of the triangle.
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
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