"Shootin' The Bull" Commodity Market Comments...
For January 26, 2022
Live Cattle: It's been a wild ride the past three days. I anticipate several more before it is over. Purveyors of cattle are anticipated to become aggressive in ownership of futures. I say that as the production side of the industry is stacking cattle up on the front end. With a belief that there will be fewer cattle to work through in 2022 and forward, today's glut will be a few months down the road famine when it comes to numbers. The on feed number confirmed the increase of wheat pasture cattle being pulled early. Further hikes in wheat prices will only go to exaggerate the situation as higher prices will reflect the poor growing conditions. The chart pattern on the June and out months leads me to want to be long the fed cattle market. A double zig-zag pattern is believed to have formed in the June contract. August looks the same and October is already challenging contract highs. This won't all be roses and confetti due to word that beef bound for restaurants is backing up. Freezer space is limited and perceived full at the moment. Exports are anticipated to remain good and with as much money still floating around, I don't think price is quite as much of a problem as some think it is, or the media news portrays it. I do not have a recommendation as of yet on the fat cattle as the hyper volatility is difficult to wrangle in and no break out at the moment.
Feeder Cattle: Producers in every sector of production will see higher input costs going forward. Farmers do not want to sell what they have for fear of inability to replace it at the lower price of production. As well, end users will continue to have to come to the market for supplies, as no price break has been seen to offer anyone a chance at a better price. I do not perceive this to be bearish at the moment due to anticipated lower supplies going forward and the always possible chance that the rains come, corn plummets and feeders soar with heifers and cows remaining on the farm. I believe at the moment the industry is merely dealing with a setback, caused by just about everything you can imagine. As the pipeline clears of issues that are backing cattle up at the feedyard sector, I anticipate further improvements in price for feeders. I am watching closely the March and April contracts. Were inventory at yards to start to move out, the openings will be quickly filled, but most likely with higher priced feeder cattle. That is because producers are pulling cattle off wheat pasture and every one that is pulled early will not be there in the normal time frame of placement. The near positive basis to March and April makes these contract months enticing to own. From May and out, the premiums are already high. I anticipate more trading within the range until further information is garnered about the drought and aspects of moving cattle out of feedyards.
Lean Hogs: Hogs were mixed today.
Corn: A few corn contracts and most bean contracts made new contract highs today. An interesting aspect of a market at contract high or low is that one side has no profit in existing positions. As in, today's high in November beans is $13.38&1/4 and the close $13.32&3/4. That means that the highest sold position has a profit of $.05&1/2 and just about everyone else short in a losing position. So, anticipate higher trading with a short covering rally anticipated to bolster grain prices higher. In my opinion, there is nothing the current administration is doing to curb inflation. With the anticipation of Thursday's FOMC meeting to produce an interest rate increase, the price of money will go up. Just another increase of input cost to factor into production now. Wheat is believed on the verge of moving higher. The chart pattern created off the lows made 1/14 July Chicago, is believed a 5 wave pattern. Today's sharply lower trade is believed the correction of the 5 wave move up. So, it appears there is a wave 1 complete and wave 2 in the works. Upon completion of wave 2, a wave 3 rally will be anticipated to send prices higher, and test current contract highs in wheat. With all that said, this year's corn and soybean crops are not in the ground, facing a major drought, geopolitical indifferences around the world, and lots and lots of money to buy things with, leads me to anticipate higher prices. Remember that when any end users run low, there is no cheap product anywhere and to the market they will come.
Energy: Energy continues higher as nothing is being done to quell the rally. There have been no restrictions lifted, no new production brought online or trade deals with OPEC to help increase production. This must mean the current administration wants the inflation of energy prices. Maybe they believe that higher energy prices will help to soak up all the money printed the past two years. I don't know, but seemingly there is nothing in works to promote production or stifle demand. As well, think about what the administration wants, more social spending and break in the clogged distribution channels. Both of which would be anticipated to produce more demand for energy.
Bonds: Debt instrument prices are in a bear market. The current higher trading is a correction. I anticipate further declines in debt instrument prices of all time frames. Gold got hit in the same manner it always does, so no surprise there. It has been noted by more than one of the relationships between crypto coins and gold. Lastly, equities continue to be hammered. I have spent a couple of days where I could watch the financial channels and their nonchalant attitude towards this break in price, coupled with actually trying to buy the dip, suggests this could be a slow painful decline in equities. I say that as the chart pattern appears to suggest anticipating more downside trading, but more than that, it seems a cycle turn is upon us and every time the market pops higher, there is someone there wanting to convert stocks into cash. Just like the previous cycle was every time the market dipped, there was someone there wanting to buy it. Cycles change and this appears to me to be a major one.