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“Shootin’ The Bull”
Commodity Market Comments
by Christopher B. Swift
May 25, 2018
.The results of the on feed report were as friendly as you could ask for. It reflected significant movement, lesser placements, and continual decline in the on feed numbers. Market action was dismal after the report was released. My analysis is based on the October fat contract as there is little predictive forecasting offered by the June and August. It is believed inventory will be elevated and about the most that can happen is a convergence of the basis in these two contract months. This doesn’t offer much in the way for profit potential and is a very risk laden environment when attempting to narrow a basis. So, the October fats appear to be in a wave 1. Of what magnitude remains unknown. At this time, it is believed that wave 1 remains incomplete. Therefore, I anticipate further upside potential in the October and out months. When wave 1 is complete, a wave 2 correction will be anticipated. This could be scary with the sore spots that have developed over the past few months. Nonetheless, by having reconditioned myself from bear markets over the past years to conditioning myself to a fledgling bull market environment, I will continue to contend that a correction in fat prices from the October contract out, should be bought. I believe I’ll be able to come pretty close to finding the top to this wave 1. Were I to take a pretty wild guess, if we see the wave 1 top the first of next week, the wave 2 could last 3 to 8 trading days. This may put the wave 2 completion in just about the same time frame as the Moore Research shows a higher seasonal tendency starting. This seasonal tendency wiggles a little, but the main trend of the seasonality is higher. Watch for the completion of wave 1. Upon a 50% to .618% retracement of the price range from the 5/8 low per respective contract month to what ever price the high terminates, have plans made to be a buyer with calculated risks to the low of 5/8 per respective contract month. Factors this week keeps me friendly towards the beef market. One factor is the settlement of the Chinese/US trade negotiations. No longer will this be a prick in the sore spot of bullish traders. Especially in grains. Another factor is the continual consumer demand. I have seen this demand in the form of an increase in franchise purchases of Wahlburgers and In and Out burgers. As well, John Goodman has a commercial out for McDonalds that sure looks like competition for adult consumers over the “Gourmet” hamburger restaurants. Lastly, employment continues to rise. I see no reason to believe our economy is too hot, or at a turning point where business would begin reducing workforce instead of increasing it.
Some significant overlapping of waves this week has helped to confirm the E wave of a major wave 2 correction in feeders complete. Feeders have the same short term wave count pattern as fats. This current wave 1 up has upside targets to between $147.00 and $149.00 August. Somewhere around these areas is where I would look to do something. I don’t know what, but maybe lighten up longs, maybe reassess some risks, or for feed yard managers, how to hedge such a wide negative basis. Once wave 1 tops, the correction will be viewed as an opportunity to adjust any remaining short hedges. I believe as well that feed yard managers may be able to benefit from a narrowing of this over $9.00 wide negative basis. Like the fats as well, the closer we can get to the second week of June, the better I think the market will be. Get this wave 2 correction out of the way around that same time frame, and I would anticipate feeders to push higher through the summer.
Grains finally have begun to look bullish. Every other day, they take on more attributes of a bull market. Corn and wheat this week have posted new highs suggesting major wave 2’s complete and major wave 3’s in progress. I anticipate a thrust soon to push prices away from the current congestion and start to create a new price range at a higher level. Beans and bean meal were the benefactors of the swords being sheathed last weekend by China and the US. This saber rattling was just like poking a sore spot. Everyday it was healing and then one of the two would poke it. Now, I think the bean and meal market will heal up nicely and continue to push higher. The truckers strike in Brazil may give a spurt to beans and corn as well. They are having difficulty getting subsidy payments from the government and if they aren’t receiving money for their goods, there doesn’t seem to be much incentive to get them to market. Nonetheless, I anticipate the grains and oilseeds markets to move sharply higher in the coming weeks.
No marking of time today. Traders sold crude and the products all day long with both hands. With the changing of news to OPEC wanting to open the spicket’s for a new layer of gold dust on the ol’ Ferrari, I could see where energy could come under some pressure. What I don’t believe is that there is any lack of demand. So, although prices may come under some pressure, I’d say sales will remain elevated.
US Treasury Bonds:
Bonds continued higher today. I believe a correction of some significance will materialize. This may be more a marking of time, but the establishment of a trading range is what is anticipated. Keep a close eye on gold and silver to plummet.
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Commodities Brokerage, Commodity Market Analysis, Hedging, Price Risk Management
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