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“Shootin’ The Bull”
Commodity Market Comments
by Christopher B. Swift
January 23, 2018
Here is a clip of my comments on Monday’s RFD-TV Market Day Report. April fats scored a new high close when it exceeded the January 3rd high from the January 10th low. Recall the pattern was viewed as a “falling off a cliff” and that I noted this pattern being one in which I anticipated a climb back up the cliff. Today it completed this segment of the climb. So now we have to begin to wonder if the weather is the impact on fat prices moving higher, or has the weather exposed something else we couldn’t or didn’t see? Always more questions than answers. Regardless, technical indicators are pointed up and spot led rallies tend to be more significant than others. With this occurrence having happened across the board, it adds further credibility towards prices moving higher. Although I did fall prey to the comments made by the banks and other analyst, causing a stutter step on Monday, I fell back to what has kept me from being short or overly hedged and that is, the current economic environment does not appear conducive to a bear market. Volatile, yes. Wide price range, yes. However, not something like what we saw in the ’15 and ’16 time frames. For the consumer to change current spending habits, I would want to see a decline in employment or wages, a rise in living expenses, of potentially anything out of the blue we can not see or predict. There are a lot of those out there. However, you can not hedge against everything and to do so would create a very unprofitable margin to work from.
Albeit by only a few tics, I didn’t get the close or new high I would have liked to have seen on the March feeders. This may not be near as significant as I thought due to nearly all the other contract months having set a new high close today from the 12/22 low. Recall feeders didn’t make a new low in January as did the fats. Two factors continue to stand out. One is the dramatic change in the basis from positive to negative. The abruptness of this change was in stark contrast to other moves. Second is that I’m noticing at inception of new contract months they are premium. For the past 2&1/2 years the new contract months came on the board at discounts and at times severe. These two changes set up what I perceive is coming down the road. Were the inventory report to show that elevated heifer placement and cow kill could begin to turn expansion horizontal or down by the end of this summer, it could set the stage for a really wild ride. That being that demand has remained or increased and the call goes out once again to expand. One, this would take inventory off the market initially and it would be a minimum of 3&1/2 years before the newest product hit the store shelves. It was this factor that pushed prices so hard and fast from May of ’13 to October of ’14. It wasn’t elevated beef demand, it was a shortage of beef with lots of forward contracts from retailers that had to be met. I know this is a long way from now, but it is something to start simmering on.
Energy was higher today. This will be a new high close for the spot March contract in crude. With crude supplies perceived more than adequate, this is a good example of demand.
S & P 500 Stock Index:
Although slightly higher as I write this today, bonds remain in their down trend channel.
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