In my opinion, producers had some interesting factors placed before them this week. Bank failures, systemic risk of further, and a real mess to untangle from Janet Yellen's explanation of how certain banks will receive favoritism over others. That sparked a fury of questions on how regional, local and community banks will keep customers when deposits over 250K are not FDIC protected while favored banks are. The price action of interest rate instruments this week didn't help to calm any fears either. Soaring and plummeting within days and hours of one another, the price expanse caused multiple physical transactions to take place in a very wide range. Banks, pension funds, and participants in the debt market were all exposed to volatility not often found in these markets. What do banking failures tend to do to consumers? Have them contract. This situation is much more serious than just a failure, it is potentially the reorganization of the banking system. Were there to be any form of nationalization of banks, or excessive government overreach within, imagine the agendas that could be pushed through. As the Biden administration has already begun attaching strings to subsidies, dictation of what you can borrow money for will grow. All in all, the consumer continues to be put under more pressure from the recessionary tactics applied by the Fed, and inflationary factors supplied by the administration. These pressures are anticipated to be seen through a lowering of discretionary spending habits. Energy prices plummeted this week and rates dropped, both showing signs of recession.
Beef production, hampered by poor weather impacting cattle weights, is anticipated to subside going forward. Recent carcass data and weights have shown how good the genetics are in feed conversion to muscle instead of fat. Along with work done by packers to handle larger carcass frames, the combination of growing cattle bigger and ability to handle them in mass is becoming a form of circumventing the fewer cattle to work with. It appears that with the consumer tightening again in discretionary spending habits, cattle and beef industry participants are preparing for this. I think some producers that were going to hold cattle forever are turning them lose. I hear more cattle available at sale barns than were expected. I know these are not animals found or not counted for, these are cattle that were not intended to be marketed, but are now. Money speaks volumes to consumers and industry participants, and money has gotten really expensive in a short period of time. Therefore, one has to consider the pay off in the future versus marketing today and relieving some of the pressures of debt. Cattle feeders have done an excellent job at keeping feeder cattle prices from soaring. As old-world math continues to keep cattle feeders grounded in making profits on a P&L statement, futures traders and one-sided supply analysts keep paying premium on top of premium to own a cow.
This week has been very beneficial to all participants. Those needing some relief from margin calls got some reprieve this week. Those needing more cattle can obtain such at a lower price. I used this week to recommend adjustments in your positions. This weekend, take a few moments to go over your hedge positions. Things you did not like while prices were moving higher, change them. Things you did like, do more of. Anything to help you manage the risk and keep it managed to fruition of the marketing, is believed going to be of benefit. Without the index screaming higher, suggesting cattle feeders have some new P&L calculation, the futures will settle to the index and the basis the only premium there is to collect. You are going to want as much basis convergence as you possibly can. The weaker seasonal tendency remains in effect until the middle of April. It is possible that after this tendency, traders will attempt to regain lost ground. The video sales in late spring/early summer, tend to produce exceptional prices and may again this year. As beef prices are not necessarily soaring at the moment, and cattle prices softening slightly, it appears the industry has some controls they are using to keep prices from soaring. With the slight tilt in consumer demand believed coming, the management of cattle and beef appears to be rationing product, keeping prices from rallying sharply, hopefully keeping demand steady.
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.
