"Shootin' The Bull" Weekly Analysis...

For the week ending March 15, 2024


In my opinion, not a great deal changed this week. The volatility and price expanse increased this week, but to no avail as April closed lower than last Friday, June a tic under and August a few tics over.  Beef prices are believed higher than ever, barring the two black swan events.  Some have questioned why feeder cattle can't move like cocoa and double or triple in price.  There is no doubt that a commodity price could move to any extent.  We have seen crude oil negative and coffee prices having never exceeded, so far, their 1975 high. So, markets can do anything with enough money and desire to assume risk.  With chocolate a world market and Europe as large of a consumer as the US, I think it is as simple as the difference between a world market and domestic.  As well, chocolate is a luxury item sold as a treat, not a meal.  Oil is a world market as just about everything has to have an energy source to produce.  The softs of cocoa, coffee and sugar are all large world markets.  US beef cattle though are not a world market.  The import/export is miniscule.  Beef on the other hand is somewhat a world market, but the US is a niche market.  It produces really expensive grain feed beef.  The cost of which to produce has never been higher.  So, while no doubt under the current extremes of rationing beef cattle, the price can still move higher, but the profit margins at multiple sectors continue to lose margin.  Really, it is not so much that, but this time frame of rationing is producing a price for cattle in which some can't afford, some can't afford the risk, and some have simply decided to exit the business.  Those that are going to fight the battle are anticipated to either lose significantly, or grow significantly, with very little middle ground.  I foresee this as vertically integrating the cattle market in a 180-degree opposite way that was done in the hog market. 
In the hogs, the price was driven to $10.00 cwt.  I know because I bought a top hog weighing 250 lbs that I wrote the check for $25.00.  The processing at the time was $75.00.  Today, the price increase of cattle is expected to begin to cull weaker operations, older ones, and of the most importance, keep any brand-new production from starting at scratch.  Hence those that can survive the hyper volatility, expanding input costs, and no doubt, more ecological limitations, will be part of the few that produce beef.  This is nothing new and has been written about extensively on other commodity markets.  In rationing, there will be a very specific agenda to adhere to in order to keep beef prices from soaring, out of reach for the consumer.  That agenda continues to be in play as carcass weights this week were heavier again.  While no new news on the dairy/beef cross, it just keeps cooking along with those involved apparently seeing better margins than just beef cattle.  While that gap will narrow going forward, those on the front end of expanding this product are enjoying the new aspects of. Australia is going to continue to use the US as not necessarily a dumping ground, but a willing buyer of their product.  This week, I learned not only beef, but lamb is heavily imported from Australia.
The US is seemingly moving along a like path as multiple other industries.  That being, I want your product, but I don't want it produced where I can see it.  As well, if it were produced in another country, where the same issues of production exist, that would be even better because it is produced for less in other countries and shipped to the US, so the only thing I see is the product on the shelf.  Recall Ross Perot, "Y'all hear that suckin' sound? That's the sound of all those jobs going down to Mexico."  That was the start, in my opinion of the US sourcing out production.  The beef industry is having to source product from other countries in an attempt to keep beef prices in the US from soaring higher.  As the consumer adjusts to either eating less, or lesser quality, the longer that stays, the longer it will take to regain their willingness to pay a higher price for quality.
Futures traders are not willing to assume any risk at all in the live cattle market in the form of premiums on futures contracts.  I think that is because they would be marketed into heavily by producers.  Futures traders in the feeder market continue to be the producer's best friend.  At any time, they have been more than willing to offer you a premium for your product.  Along with this premium, options strategies have been able to offer producers ability to manage risk with a hefty leeway that may or may not be even more beneficial than the premiums already offered.  The boat is loaded very heavily on the long side of cattle and short side of corn.  While I understand there are few waves to shift the boat the other way, but if someone just stands up, it could create a decisive move in futures for which you will want to be ready for.  While corn would be the least apt to move sharply higher, I recommend that if corn were to trade a little lower, top off any nook or cranny you can find with feed to take advantage of the low price today.  On the flip side, feeder cattle producers, now losing margin due to the higher price of lighter weight cattle, are urged to use the premiums available to you in the futures market to help you achieve a higher marketing price that may or may not be available to you in the future. 
Grains were volatile and believed forming a wave 4 correction.  A great deal of expectations are being formed on the March 28th planting intentions report.  I continue to believe the total number of acres to be the same with actually a few more going to corn than USDA perceives. I think if there were any type of surprise in the report, it would be that beans didn't quite get the acres expected.  Energy exploded out the top.  I ducked every time I should have dodged and dodged every time I should have ducked.  Nonetheless, the energy market is moving higher and crude closed the week above $80.00.  Nothing that I learned in Chicago has had the negative impact on crude as was expected.  I have no blame as I to have been wrong too many times.  What I am searching for now is being right.  Bonds had little choice but to sell off as this week's inflationary data was inflationary.  No rest for the weary and it very strange the differing economic opinions.  Where is the money coming from to spur the inflation? Since food and energy tend to be excluded from these numbers, it suggests employment and retail prices causing the bulk.  No one seems to want to work, or put much effort into working, so two things are taking place, less work is being done at a higher wage, and good work being done is at an extreme pay rate.  I am concerned our current administration will continue to fuel the fire of inflation and the Fed cautious in this election year to stomp it out.

Christopher B. Swift is 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
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