Live Cattle: I stated yesterday that the B wave would be long and drawn out, due to not much beef production at the moment. That is true, but in the first quarter, it appears the US will be inundated with beef. Higher numbers on feed, with growing carcass weights and today, seemingly clues of recession are being discovered, suggests the consumer will have the beef they want, and still may not be able to afford it. The live market is trading in a like manner. That being the front end is trading lower and the back end, not as low. The dividing point appears to be between April and June. With October placements high, and November believed nothing to sneeze at, suggests ample beef production out to April. If first quarter placements are light, as anticipated, second quarter beef production could be lower. It will not surprise me to see April live cattle trade under June live cattle.
Feeder Cattle: We work very closely with lenders to help them manage the risk their clients assume. If your clients need help, call us.
Cattle feeders have the wind at their back. Especially with those that managed risk. With spring offerings anticipated to be lower, you need to start getting inventory bought or hedged to buy now, while prices are low and falling. I recommend buying the at the money call option and sell the $10.00 to $15.00 out of the money put options to create a fence options hedge strategy for which you have determined the price you will pay. This is a sales solicitation. If prices do continue lower, you will be able to average your purchases down. A great way to build inventory. If the spring produces a rally, then all the better. If not, then you have bought cattle cheaper anyway. I see a lot of changes taking place in the industry. I see a lot more opportunity for large operations to own smaller cattle and raise them to specifics for their operation. The number of participants at the various production levels all want profit for the capital invested. Going forward, you may be paid for the production with no capital outlay, but no opportunity for profit or loss. Some may like this as it allows for the lifestyle, without the risks of price fluctuations. As all of this year has required extensive capital requirements, anticipate that to continue. Lastly, lenders are believed to need some help. If you are a lender, and your clients are suffering from this, consider calling us and letting us at least help you with information that may be beneficial to you.
Corn: Corn was lower. Corn is believed to have topped. The 7 day rally was miniscule and I can not find a reason for it having rallied, other than producing an opportunity to sell. I made recommendations today to sell March corn with a buy stop to exit only at $5.00. This is a sales solicitation. I recommend farmers, who have a scheduled sale in March, to sell the $5.00 calls. This is a sales solicitation. The $5.10's no longer offer a large enough premium to make it worth the while. It's not a lot to begin with, but at low prices, every penny helps. Beans broke to a new low today. I anticipate that when the weather models concur on South American rains, beans will lose significant ground fast. As well, at the new year, a great deal will be known about the SA crop and may lead to China canceling recent bean purchases. Lastly, if the US is going into a recession, currently taking energy down, it lowers the support in beans and corn for their biofuel diversity.
Energy: Energy sold off hard today and only made me wish I had realized I was wrong earlier. Nonetheless, the deed is done and I'm glad to not be long. I am very disappointed in that lower crude and the higher bond price leads one to anticipate recession. So, there was no good outcome to oil either way. Had I been right and it higher, the bout of inflation could have done more damage than the recession. All in all, it appears that if the recession does strengthen, it will further weaken US production, and make it harder to increase that production. Most likely, there will be a great need this spring to stimulate the economy, when production levels are down, setting the stage for hyper inflation. Thanks Bidenomics.
Bonds: Bonds were sharply higher and made new highs from contract low. I anticipate bonds to trade higher. The ADP report today showed fewer employed than anticipated, although still higher over all. Friday's Unemployment report is anticipated to show the same. Still job increases, but at a slower pace. Bonds continue to move higher as the rate cuts are now actually impacting production of commodities, retail goods, and services. The Daily Livestock Report showed today where consumers are pushing back against the high restaurant prices. The Fed is doing their job by decreasing inflation, albeit at a snails pace.
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
An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.