"Shootin' The Bull" Weekly Analysis...

For the week ending November 25, 2022

In my opinion, cattle feeders have been able to garner a higher price in the cash and futures market, with box prices believed having resumed a downward trend.  Futures traders continue to provide beneficial premium on to futures contracts for cattle feeders to market into.  I remain neither bullish or bearish cattle prices as the supply issues are burdensome. However, with elevated cow slaughter and heifer placement, there remains ample beef production, believed well into the first quarter.  I think the talk of recession by media outlets and financial analysts has the potential to create a self-fulfilling prophecy.  That being, as the consumer is told a recession is coming, they will naturally refrain in spending, actually causing the recession.  I weigh this information along with the supplies to help balance the analysis.  Last week, we subjected ourselves to a strategic planning meeting that helped us work through our strengths and weaknesses.  Our goal was to grow our business.  This was no easy task as strengths come fast and furious, but weaknesses tended to be slow and excruciatingly painful at times.  Recognizing weakness is a goal of every organization that I know of.  As in most cases, a chain is only as strong as its weakest link.  I would urge you to consider conducting a strategic planning session for your operation to see what your strengths and weaknesses are.  Once admitted to, we formed a plan to help increase the intensity of our strengths and strengthen our weaknesses.  Having already put the plan into play, we feel better knowing we have an objective and where we will excel and where we will have to do better. I would urge you to do the same.  You may not like what honest answers could be, but I can assure you that tackling the toughest of problems with a plan is so much better than not.

Feeder cattle are the ones to watch.  Traders have formed a 5-wave pattern up on the most recent move from 11/15 to 11/21.  As I write this, traders have retraced approximately 50% of this rally, putting the high and low about $3.00 from where March closed. Were traders to start taking futures higher, I won't stand in the way with heavy handed hedges.  Just the opposite if the downside is exceeded.  The real trick going forward will be how to help cattle feeders procure inventory, at such premiums, regardless of where you go to buy. One has to have a good calculator to pay the premium futures represent, and hope you are hedging them at a cheaper level than in the future.  This situation could turn into a flurry of activity around the first of the year as cattle feeders will want to have inventory to market during the spring and summer months.  I will be watching the March contract closely now for signs of a directional move of significance.

I swapped horses this week by abandoning long corn positions for long January $13.50 soybean put options. This is a sales solicitation.  So far, all I have gotten is wet.  Corn rallied and beans held their own by weeks end.  Were March corn to begin trading above $6.77, I will quickly resume long positions in corn. News of China's lockdown, being equivalent to approximately 20% of their GDP, was alarming.  Combined with fewer US imports and a suspected huge South American crop, beans began to take on a negative fundamental outlook.  With traders having triangulated the price into a narrow point, a break out is believed immanent.  Which way remains the question, but the news out this week leads me to anticipate the breakout coming to the downside instead of up. News was not weak for corn, but gasoline prices falling and seemingly having to contend with wheat and beans softer, it may be more difficult for corn to rally.    

Refining capacity this week ran at 93.9%, one of the highest I've ever seen.  With the profit margins believed wide, it would make sense to turn on the spigot and refine as much as possible while hedged profit margins are wide. This week, diesel fuel broke to a new low.  I recommend holding off on topping off farm tanks to see if another $.20 or $.30 may come off the price.  Bonds were higher as borrowing needs are having to be enticed.  Next Friday's employment report is anticipated to show further slowing of jobs.  This week's jobless claims rose, with an increase in continuing claims as well. With the Black Friday sales starting, sales data will be coming in hot and heavy starting next week and traders will start forming opinions of how much spending is taking place.

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.