Live Cattle: This morning, after much ado about nothing from Friday's announcement of Secretary Rollins speaking, futures traders quickly narrowed basis. The border is a hotly contested issue for which we can believe that some portion of is responsible for limit down and near limit up moves from one day to the next. The volatility and price expanse allows the most novice to understand the complexity of the situation and how quickly it may turn. With supplies not anticipated to fluctuate by much, unless or until the border reopens or tariffs reduced, demand from consumers, and all beef/cattle participants are believed as the driver of price. Last week, we saw that fewer employed consumers were dealing with the same increase of inflation as those employed. Starting off today, it appears that I may have been wrong on energy prices resuming a fledgling bear market. From last Thursday's low, a definitive V bottom was made for which follow through was seen today. Diesel fuel is leading the way at the moment. As last week's rise of inflation was not due to commodity prices, except beef, were commodity inflation, specifically energy, to rise, it will be interesting to see if beef continues to participate or is hampered by. Lastly, even with vertical lines of integration helping to mitigate portions of price risk by controlling more of the production process and spreading revenues through the chain, with beef sales believed a large part of the revenues, input costs are soaring. The spread between starting feeder and finished fat, feed costs, even in abundance, fuel, hedging if used, and everything else that adds to an expense suggests the industry has not yet found the top for working capital.
Feeder Cattle: Futures traders were quick to try to narrow the wide basis. The volatility and price expanse is expected to continue. While the day is filled with excessive noise, the close only chart can offer a different perspective. In this case, the feeder cattle have a pretty clean 5 wave move down on the daily close only charts. Whether this is part of another correction, with further new highs ahead, or a top of larger magnitude that may lead back to the July 2 low, is undeterminable yet. For the time being though, I would anticipate a great deal more price expanse and volatility to take place before a direction is chosen.
Corn: Similar to the way cattle shook off nothing having transpired over the weekend about the screw fly, corn sold off after Chinese trade agreements had nothing to do about corn. I anticipate some sideways to lower trading in corn.
Energy: This market has my undivided attention. First, after the summer rally fizzled, it appeared that between President Trump's desire to have lower fuel and OPEC not changing anything in objection, it led me to anticipate energy softening. I thought by last Thursday that energy was on the verge of trading lower. It didn't, made a V bottom in the wee hours of morning and continued higher through today. Diesel fuel is leading the way so far. Another $.02 higher and diesel fuel will appear to be breaking out to the upside. With inflation already steadily climbing, and a potential rate cute on Wednesday, a touch of commodity inflation would be like throwing gasoline on the fire for consumers. I recommend booking fall harvest fuel if you have not already or top off farm tanks. This is a sales solicitation.
Bonds: Bonds remain in an uptrend. Wednesday's FOMC meeting is expected to see rates cut by a quarter, but some may contend a half. Either way, a great deal is already in the markets and what will be anticipated is to see whether the economy is in really bad shape, or traders and investors use the lower rates to turn the economy hot.
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.
