"Shootin' The Bull" Weekly Analysis...

For the week ending August 5, 2022

In my opinion, the sharp increase in employment for the month of July should be a benefit towards beef.  Unfortunately, I think it will take several months before consumers would be able to shift in discretionary spending habits that favored a willingness to pay more or increase consumption.  That is because I believe the reason the consumer went back to work was due to losses in bitcoin, the government teat drying up, or it now taking two to do the job of one. Regardless of why employment shot up, it was taken as having the potential to fan the flames of inflation.  Energy prices moved higher on this news with grains already having started earlier this week.  Front month contracts of live cattle continue to meet with stiff resistance in this rally, while the back months are setting or testing new contract highs at premiums $14.00 shy of historical price for fed cattle. I continue to believe that the majority of price action in the live cattle is computer generated and not humans.  Open interest has increased slightly, but cut in more than half from previous highs.  Going forward, it anticipated that industry participants will have to continue to distribute money amongst themselves, as it is not anticipated the consumer will be spending more on beef.

Backgrounders just can't lose, or at least haven't lost yet.  Not only having been privy to gracious premiums provided by futures traders, but someone's willingness to increase risks substantially by bidding higher for the incoming inventory.  Whether these prices paid are out of necessity, or a belief that cattle prices will continue to soar, is beyond me.  Nonetheless, the industry is going through changes and is believed yet to have found congruency.  The chart pattern of feeder cattle futures from contract lows, made in May, is littered with overlapping of waves, suggesting this rally to be a correction.  As well, the new highs in the index this week are believed bringing the top closer than calling for further advancement.  The oscillator on the index has divergence.  Regardless of whether prices move higher or not, I feel it prudent to manage your risk at the premiums available to you.  Especially in the remainder of this year's contract months.  The sun doesn't shine on the same dog's bottom all the time and the current dog appears well tanned.

Corn is believed going to be the most important factor in cattle production going forward as anything.  Rising fuel prices may sting, but rising feed costs are expected to hurt.  Basis is a huge issue this year already and with the southeast's production declining sharply, it will continue to be the biggest issue going forward.  Few will want to step up and assume the risk of your basis.  Unavailability, or transportation delays, are expected to cause basis to soar.  I recommend you sit down and begin the difficult discussions on how you and your operation will manage feed costs going forward, regardless of whether I am right or wrong on my analysis.  Poultry production and hobby farming in the south consumes pretty much all of what is grown locally.  A lot of bins are being scooped out for every kernel available.  Transportation costs are anticipated to continue to move higher as everyone wants everything now.  I think this to be a significant situation going forward.  I recommend you address this situation sooner, rather than later.

Energy markets are believed reversing.  The employment news is supportive as consumers have seemingly had to go back to work.  While it will take a few months before the added income begins to make a beneficial impact on the consumer's discretionary spending habits, the demand for gasoline to get back and forth to work, and a potential increase in transportation of goods,  should increase much more quickly. While I understand that farming operations at harvest are not a mover of fuel prices, every other factor in the world is.  I have recommended this week for farmers to use the $.80 break lower in spot diesel fuel to book harvest needs before getting into the field and having to pay spot price when the fuel truck pulls up.  The price of money shot up with the increase of employment.  Interest rate instruments had been trending higher in price as the confusion between inflation and recession keep getting tangled up with one another. Today though, all were sharply lower in price as this information could push the Fed back to a more hawkish stance.  The US dollar ended higher on the week, keeping exports of everything hampered.  All in all, it appears that the subsiding of inflation gave everyone some relief.  Unfortunately, with seemingly no encouragement or ability in some commodities to increase production, end users maybe running low on product as new rounds of production needs just keep coming.

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
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