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“Shootin’ The Bull”
Commodity Market Comments
by Christopher B. Swift
June 22, 2018
In my opinion, the cattle market has started backing up. The on feed numbers are anticipated to be proof of this. I’ve stated for the past two weeks to protect the pocket book first and look to pad it later. This instance, coupled with elevated cold storage supplies, could add some credibility towards that recommendation. As good as the cash cattle market has been, and as nice as it has been to see increased demand, both domestic and export, there are some hurdles now to contend with. Of what we know, there is still elevated inventory to work through. Domestic demand may remain stable, but doubtful it will increase. Export demand is questionable now with looming tariff talk that so far has been absent of beef in the verbiage. Were it though, it would be from out of left field and hard to get in front of. Then there is pork. Pork production is anticipated to continue. We’ll find out by how much next Friday. Tariff talk on pork is crucial as well due to the competition towards beef. Lastly, the dairy industry has been on my radar for months now. News articles and comments about the dairy industry have been abundant, telling the woes of milk production. During the grain melt down, my focus shifted to them and I had not looked at a milk chart in two weeks. Today, I did. Prices for class III hit new contract lows, with spot July trading under $15.00cwt. While this may not cause an abrupt liquidation, it does put more pressure on underperforming dairy’s. Butter, and especially cheese, have hit the skids as well. So, long story short, I perceive there to be more negative impacting factors towards the supply and demand of cattle than there are positive. Since fat cattle prices have been range bound for a couple of months now, and closer to the top end of the range than bottom, it leads me to anticipate a return to the bottom end of the trading range. Hence, I reiterate, protect the pocket book and look to pad it later.
Feeder cattle traders have created a wide range from low to high. They have traversed this range several times. I think they will continue to traverse this range with the next most probable move back to the downside. Potentially, not as bad as what fats may do, but lower nonetheless. This is because, regardless of our situation at hand, the “wall’s” of cattle the past two years are not anticipated to form again. If they do, it will be due to current marketing practices, and not the increased birth rate from ’14 & ’15 when cow retention was elevated along with the heifer’s. The wave count on the feeders isn’t set in stone either. The new high above $149.50 August did help considerably, but the small gains up to $150.75 didn’t make much headway. Not only that, August continues to close under that $149.50 high that has recently been exceeded. More likely than not, the on feed report will keep prices stagnated or lower in the fat market, and therefore the need to reduce the amount paid for feeder inventory. A trade back to $142.17 August will not surprise me. A trade above $150.75 August will change this analysis greatly. Until then, protect the pocket book and look to pad it later.
.Grains are still a sore spot at the end of this week. The blood spilt may remain a stain for quite some time. Beans recovered some from most likely short covering. The corn and soymeal remain my favorite. That is due to the shear demand. More cattle on feed, more hogs on feed, and more poultry production suggest that more feed will be used. Wheat remains confusing to me, but I think this may be coming to an end. I continue to believe my analysis is correct on wheat. The C wave of the major wave 2 decline remains above the inception point of the first wave. Corn exceeded this level confirming I was incorrect on that analysis. The wheat though has problems that won’t be rectified anytime soon. Especially if the drought persists into fall planting. Lastly, I don’t have much to add to the tariff ordeal. However I will say this, if it is imposed, I would look for corn to meander back up to the level from which it fell over the course of this summer. If not imposed, corn may be at those levels in less than two days.
No rest for the weary in this market. Crude up $3.74 last trade today in August. Gasoline and diesel were both up over a nickel. I’m hesitant to say this is a reversal, but I am disappointed that the opportunity for $2.00 diesel is fading.
US Treasury Bonds:
As the enactment of tariff’s draw’s near, the ramifications will most likely impact the US economy in some way. Potentially not to anything drastic, but most likely enough to keep the bond market firm. I anticipate bonds to move back towards the upper end of the current range and maybe even exceed it slightly.
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