Live Cattle: Risk was exposed last week that few even considered, and nearly impossible to manage. That being, the bottom falling from the beef market at the same time packers paid historical highs for cattle. The rug pulled from under the packer is believed to have created a very deep margin hole to dig out from. Today's lower futures only represents a fraction of the price decline needed to achieve positive margins. It would not have been all that bad had cattle feeders not done a similar aspect in their venue. That being, paying tip top price for incoming inventory last week and starting off this week at a worsening positive basis spread. Nonetheless, futures have been foretelling of a change and many more outside of the cattle/beef industry have voiced significant reservation about the ability of the consumer to pay any price. All the while, cattlemen, simply acknowledged by the cash leading the way, said the consumer will eat beef at any price. Seeing the margins erode to grocers and restaurants, it appears the consumer will eventually win the day as there are aspects that some consumers can no longer afford to eat beef at the same consumption level or price, since the great money give away of the Biden administration.
Feeder Cattle: Cattle feeders are believed going to take some form of control back from the backgrounder. As cattle demand starts with the center of the plate, it also ends it. Therefore, with the consumer not as willing to pay a higher price or consume at current levels, the downturn begins. Demand has been impacted, even with less supply. Today is the first day of any widening of the positive basis. I anticipate an exceptionally wide basis spread to develop, the old "Tiger Trap 101", causing backgrounders to have to sell futures more aggressively to avoid the anticipated larger discounts of futures. With the seasonal turn in beef, and no telling to what extent damage has been done to demand, cattlemen in every sector may well have reached a plateau for which some time is needed to organize newly acquired inventory or production capacities, mostly all created at tip top highs of cattle prices, and to some extent, most everything else you purchased this and last year to grow your operation. Whether this is "the" top, or just "a" top, won't be known for a little while. So, while prices are a mere fraction from historical in cash and contract high and historical in futures, what do you think you are going to miss out on next? If you remain hunting the two in the bush, and ignoring what is in your hand, I highly recommend you review just what those two in the bush look like compared to the one in your hand. This is a sales solicitation.
Corn: Corn made new contract lows in the overnight session. There is a gap about $.10 higher than at today's close December. I anticipate an attempt to fill that gap. If, and that is a big if, corn were to stop going down, I believe beans would rally. I recommend buying the $11.00 and $12.00 November '26 soybean calls. This is a sales solicitation. I expect the November of '26 contract to move higher in the thought of buying acres. In order to entice the farmer to plant more beans, the price needs to be higher. Along with the 4 million acres less this year, that is why I think beans are going higher.
Energy: Energy was soft today, but not before having made new highs from 6/24 low. I anticipate energy to continue higher.
Bonds: This week, the CPI & PPI data will reflect what the inflation forefront looks like smoothed out. As it will exclude commodities, due to the volatility of, it won't be a good reflection of what is hampering consumers. That being, historically high beef, higher pork and chicken, gasoline, and interest rates. All of these commodities are used day in day out by consumers. Therefore, commodity inflation is believed higher, and will mask some of any decline shown in the two reports. Via the Commodity index, commodity prices remain above the 50% retracement level of the rally from 2020 to 2022. The inflation caused by the Biden administration was supposed to be "transitory". Not only did no one believe that, but most knew the position it would place the US in years to come. Here we are with more than 50% of the inflation gains still stagnating at this level with the Trump administration not only going to print more money, but causing great volatility in markets for which only a few benefit from.
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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