"Shootin' The Bull" Commodity Market Comments...

For Thursday, May 23rd


Live CattleWhile traders were able to push June above the down trend line, all other months traded and closed within their respective triangle.  Futures narrowed basis significantly the past two weeks. The positive basis makes hedging less than attractive due to only being able to hedge for a potential lower trade. There are no premiums to capture as in the feeder cattle market.  With the agenda not only becoming more identifiable, it is believed going to impact cattle prices.  It already has by the creation of the triangle.  I continue to expect prices to trade within the triangle, and anticipate June trading and expiring within the parameters established.  
Feeder CattleThere won't be much to say were prices to move lower in fats, simply due to there not having been any premium to appreciate from.  Not so in the feeder market, where not only premium abounds, but options strategies that could further widen profit potential while maintaining a minimum sale floor.  Regardless of market direction, feeder cattle are too high, creating a risk of loss that is very difficult to hedge against, as well as a profit potential difficult to gain. At this time, it is believed feed costs can't come down enough to make a difference and fat cattle prices can't go up enough to offset input costs.  Cattle feeders are going to have to make some difficult decisions or face further adversity of profitability in feeding cattle.  If those decisions are to pay whatever it takes to bring them into a specific yard, then the consequences will be how quickly the higher prices shifts consumer demand again. If reserve is shown, it is possible that by the end of summer, profit potentials could be penciled in with much less effort. Today's price action in a lot of commodities was more than interesting. I think some of it is the simple realization that a few commodities, and all stock indices, are exceptionally inflated in a time frame for which the Fed is tasked with reducing inflation.  
Hogs:  Hogs were lower.  Basis is converging and the cutout appears to be slipping slightly. 
Corn:  Corn was higher with beans and wheat soft.  Talk of how much worse the floods impacted corn than first thought is making its rounds.  I think for the time being, even if found true, it may only make for a short spurt higher in corn, if at all.  I recommend you fill every nook and corner with feed today, hopefully providing enough to get through any summer troubles.  I remain hesitant to buy corn futures at the premium, and believe that hand to mouth will still be sufficient, maybe just put a little more in your hand at the moment. 
Energy:  Energy traders shook the tree hard today.  After moving to new lows early this morning, traders pushed all three sharply higher.  By the close though, new lows for the day were made in all three, with crude oil $.07 from the previous low.  Diesel fuel and gasoline are close behind with an approximate $.03 from meeting the mid May low. When energy is weak, the economy is weakening as it is believed little of the rally was caused by supply, but by demand issues.  As we have no more supplies today than a year ago, it is believed demand weakening is causing the decline in energy prices.  Higher prices are believed rationing demand. Think about that in consideration of cattle.  
BondsBonds were lower today, but not by much and just about everything continues to reflect the stagflation.  I expect today's lower trade to be part of a minor correction with expectations of a higher trade. 

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. .