Live Cattle: A very mixed bag today. October equaled contract high with December and February having made a new one. None closed at a new contract high. All the while, feeder cattle remain $3.00 to $4.00 from their respective contract month high and the CME index within $1.00 of its high. Of the most interest is the CME having raised the daily price limits on cattle and feeder cattle. Why would they do such? Unlike a margin call, requirement, or raise of, which is an issue with the performance bond for which the margin is the premium for. It is a good faith deposit that suggests you are capable of meeting the financial obligations of delivery. It is usually raised when contracts become more valuable. In this case though, even with value of the fat and feeder cattle contracts at historical highs, the CME chose to raise the daily price limits instead of margins. My opinion alone, and in no way to be confused with fact, is that there will be a great need to "blow off steam" and lower daily limits could allow for immense steam to build at a limit move. Cattle feeders are not only reaping the benefits of the sharp rise in fat cattle prices, but on the same note, are having to reinvest a portion of the profits to obtain new inventory. This, in my mind's eye, is the same as sitting at the craps table and stating "let it ride". I think today's price action may have several factors to it. One is the obvious amount of working capital at risk in a commodity for which supply and demand can shift rapidly. Potentially, some of that shifting is coming from consumers and the known price increases over the next two weeks they will see. Restaurants are believed in a similar position. Another factor is that rationing is starting to take place. Whether voluntary, or involuntary, producers don't have the same number of cattle they have had and some don't have any at all. A stagnating price of fats would bring profit margins down quickly, with any decline in fat cattle prices, potentially causing negative margins within a few weeks. The enormous price paid for incoming inventory, combined with a wide positive basis in fats, has created a large input cost to overcome. As stating the obvious is not a price determination, it does go to show how precarious of a position cattle feeders have found themselves in. Since a great deal of the long open interest is held by entities that have little idea what cattle production looks like, and they are very shy about being in the cattle business by bidding futures to an even basis, it may make a lot of sense for the CME to have raised limits as there is a great deal of steam being built up.
Feeder Cattle: In my opinion, the cattle feeder is paying feeder cattle prices based upon today's price of fats and not futures. If or when cattle feeders can no longer assume the financial risks, or any fundamental factor that can arise does to change price direction, we will see bids on feeder cattle drop to levels more representative by fat futures. Along with an exceptionally friendly basis to work with, cattle feeders are believed in as much of a precarious position as is the cattle feeder. The backgrounder stands the chance to lose basis in quick fashion, and then be subjected to further price decline in relation to what fats may be bringing at that time.
Other than this, cattle feeders and backgrounders will remain reliant upon an ever increasing price, dictated by consumers ability to continue to spend at current levels.
Corn: All three were able to post gains on the day. Beans, not exceeding $10.10, so far, is of the most interest. Were a reversal begin to take shape, I will want to add to the current long position. While I don't have near the aspects of corn to trade higher as beans, weather and other countries production will have an impact on corn. Were the President's meeting with XI this Friday to spawn a trade deal, beans and corn would be expected to benefit. Of what could really make beans and corn move higher would be energy moving higher. As I believe energy is going to move higher, corn being 40% energy and bio-diesel a notable percentage as well, grains should have some benefit from.
Energy: Energy was higher today. This weeks drone attack on Russia's bomber fleet was impressive to say the least. It sent shivers down my spine as to how weak the US infrastructure is on drones. Not to be an alarmist, but recall a great deal of those illegal immigrants that were ushered in unvetted during the Biden administration weren't really seeking asylum to assimilate into the American way. Believe it or not, it appears that some don't like America and have shown little reserve for its well being. Therefore, when the Ukraine used about $46,800.00 worth of drones to knock out 7 billion dollars of Russia's air fleet, I take great notice. US oil and electricity production appear exceptionally vulnerable to such attacks. I am probably way over thinking this, but then again, it's happened before, so it can happen again.
Bonds: Bonds were a few tics higher with notes a few tics lower. The once great transitory inflation moved quickly into rising inflation, to now which has succumbed to stagflation. In my minds eye, commodity inflation is the next most probable move.
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.
