"Shootin' The Bull" Commodity Market Comments...
For Tuesday, November 29th
Live Cattle: Futures traders in the cattle markets were on vacation today. The exceptionally low volume and narrow price range suggests few know what to do. I think it very possible that cattle feeders will be squeezed from both sides going forward. I think it will be difficult to entice the consumer to spend or consume more beef. This leads me to believe there may be a cap on box prices for a while and that could keep fat cattle prices from making the stupendous moves cattlemen are in hopes for. To close the vice a little tighter, those with contractual agreements to meet with packers will be buying feeder cattle, no matter the cost. So, there very well could be a rush sometime between now and the end of January to get as much product purchased before the other guy starts bidding as well. We have seen the spreads between fats and feeders narrow. This has been of great benefit to the cattle feeder. That may be coming to an end. Throw a wild card of corn in the mix and there will be no shortage of walls of worry to climb.
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Feeder Cattle: The volatility hasn't slowed down in feeders yet. Today was slower than previous, but still volatile. We know backgrounders have lost tremendous basis premiums to work from. As well, another 12 months have gone by with hint of expansion. Therefore, more animals are gone and more will have to be held back to start expansion of any kind. While this supply issue alone will not keep prices from moving lower, it does add a few bricks to the foundation that may keep it from plummeting. The supply issue alone though, along with contractual commitments to fulfill, could have a positive impact on feeder cattle prices. Even if for only a short period of time. A true economic recession could fill this thought process full of holes. This is why I am not all in on being long for everyone. Clients that are backgrounders have expressed grave concerns about the future and how their livelihood would be impacted by such. The past 14 years have been nothing but printing money by the Treasury, decreasing interest rates and a very business friendly environment. Today, inflation is destroying money, rising interest rates and a seemingly unfriendly business environment. It is not difficult to validate their concerns. So, with premium still available, there remains ways of marketing your inventory in the future that may or may not produce a higher price than when physical transactions take place. I do understand this may sound like I am talking out of both sides of my mouth. You are correct, I am. I don't have any more of an idea as to which way prices will move than you do. Like you though, I do know they will move and you only have to concern yourself with what is best for your business. At present price ranges and fundamentals, both cattle feeders and backgrounders have significant ground to cover before hindsight clarifies everything.
Lean Hogs: The lean hog index was down $.93 at $84.63. Hog futures were mostly lower with December a little higher.
Corn: Day 9 of trading in the shadows of a one day range made on the 15th of November. Corn traders haven't found enough evidence of anything to push prices out of the range. I've not seen anything yet to cause me to swap horses again. So, I am going to ride this one by remaining flat corn and long January soybean puts. Wheat is believed in a down trend. If March corn begins trading back above $6.77, I will do what needs to be done. A trade under $6.53&1/2, then I will look for an opportunity to buy corn cheaper. I'm still not sold on the soybean breakout to the upside.
Energy: Energies were firm today with diesel fuel leading the way. This move higher has done nothing to sway me back to being bullish. I anticipate energy prices to soften.
Bonds: Bonds are lower. The increased sales data this holiday season is not good data for the Fed to slow their interest rate climb. That darned old consumer just keeps spending, creating more demand that tends to raise production to meet the demand, which needs more money. All the while, the Fed is saying "No" don't spend money, don't increase production and stop hiring employee's. Whatever happened to encouraging producers to produce more, creating more supply that would work towards reducing the price of the finished product? This leads me to anticipate bonds resuming their down trend.
