Live Cattle: There is little to interject that hasn't been done so to extremes today. I think this sharp reaction has more to do with Friday's trade than the closure of the plant. After the news of the tariff's was chewed up and swallowed, it appeared that shorts were being covered and long positions entered into as traders were able to push prices from limit down to plus on the day. As well, with the information of the tariffs and up coming on feed report, my guess is that some stayed long through the weekend, or remained flat. Hence, why the large pool of unfilled contracts today. It will take time to wind the plant down and any one using that plant is most likely on the phone today securing hooks somewhere else. Lenders are of great concern at the moment. Whether hedged or not, the sheer outlay of working capital is immense. It will take some time, even if this were the bottom . The most expensive input's to return won't start to show up until the second week of January and potentially run through the end of March. Projected losses topped over $500.00 on cattle placed last week. Due to the amount of duress some are believed under, it is difficult to assess what they may do or have to do. While the duress for some was equal on the way up, that was simply not making as much as you could have, but on the way down, it is potentially losing more than you have.
Feeder Cattle: Cattle feeders have a definitive edge over backgrounders due to the significance of positive basis. This basis will converge. At today's close, new contract widths of basis was seen. This will grow even wider on tomorrows opening, but unsure if will continue to widen. The index will have a tough go this week with abbreviated sales. Cattle feeders have an enormous advantage of the positive basis at the moment. Whether they can use it or not is the question. If able to continue with business as usual, then consider using the current wide basis to fix variable input costs of the feeder cattle while at such an enormous discount. What has become exceptionally beneficial to cattle feeders is the opposite for backgrounders. This is one of the deepest tiger traps I've seen in years. Futures traders have leaped out in front to beat the cash markets to retracement levels believed the target for the index. This width of basis, and expected even wider on Tuesday, is a risk laden environment for which if not careful, one could position themselves in a manner that secures a loss. I recommend backgrounders do not enter into a short futures or long put option $41.00 plus wide basis without some great belief that the index will fall even more than $41.00 prior to expiration. Recall, basis will converge whether the index comes down, the futures go up, or they meet in the middle at any price range. You will lose the basis spread regardless of whether by futures or cash if held to expiration. Up until October 16, cattle feeders were the backgrounders best friend, paying more for cattle than probably should have and futures traders in lock step to help backgrounders keep the scotch moving up as the price rose. Backgrounders are now in an opposite position for which cattle feeders are not anticipated to pay more than should, and futures traders having already discounted futures to reflect another potential 10% to 15% decline in cash price of feeders.
Corn: A pretty mixed bag on this holiday shortened trading week. I don't expect much on the grains, but coming in on Friday or Monday, there may be some window dressing before years end. I like wheat again with the new low made today. I recommend buying Chicago or KC July wheat with a sell stop to exit only at $5.37 Chicago and $5.35 KC. This is a sales solicitation.
Energy: Crude and gasoline were firm, but diesel was lower. It is possible the issue with diesel has subsided, but could rear again at anytime. Until then, I believe crude is resuming a down trend.
Bonds: Bonds were firm today, but not by much. I don't expect much to happen in bonds until into December and closer to the FOMC meeting. Divisions between government reports, and what it feels like on the street are growing.
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
This is intended to be or is in the nature of a solicitation.” Futures trading is not for everyone. The risk of loss in trading futures can be substantial; therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not indicative of future results, and there is no assurance that your trading experience will be similar to the past performance.
