Live Cattle: I cannot find the information I have been touting on the amount of on feed inventory controlled by the beef/dairy cross and Wal-Mart. While I do not believe I dreamed this, I can't find the article from which I gleaned the information from. Therefore, until I can find this, I am retracting the statement of amount of cattle on feed by these two entities, but with a little math, it is not too hard to see I may not be too far off. 24% of 11.5 million head on feed is 2.75million head. I think it possible that through their lines of vertical integration that 2.75 million head could be easily spoken for that may not even be born yet, but will never see a sale barn or resale until hits the retail meat counter.
Fats were lower. With great expectations of stabilizing, if not increasing box prices, through dramatic slaughter cuts, the packer has made his move. These dramatic cuts are believed to have negated the foretelling of demand a rising box price would normally reflect. However, the price of box beef declining leads me to believe it has become the barometer for reflecting weaker consumer demand. Cut slaughter, produce less beef, beef prices decline. Futures traders appear to have little fear of basis convergence of futures to cash. With the current positive basis spread, it is believed the expectation is for cash to soften to levels of futures. Futures traders have been much harder on cattle feeders recently with no rally of any significance and closing at a new low today from contract high in most contract months. At least the backgrounders were able to hold feeder cattle futures a little higher for the past few days. Starting your hedging practice now will increase your risks due to the wide positive basis. If you need help, contact us.
Feeder Cattle: Cattle feeders appear in no hurry to buy cheaper cattle in the future. With the Moore Research and Elliott wave count suggesting to anticipate a weaker time frame out to June, I recommend you do the same. Set marketing parameters at levels you can live with the consequence of. Your choice of derivatives consists upon what you are attempting to accomplish. A futures contract will offer the highest price available in the future, but expose you to 100% of the current basis risk. A long put option will limit your risk of loss in the derivative, but place your minimum sale floor a significant distance from where both cash and futures are trading. An LRP policy fits this criteria as well of the long put option. Last is the one I recommend because it helps produce a higher sale floor than the put option, and narrows the basis width of convergence. For these advantages, you fix your top end and subject your self to potentially unlimited margin requirements, same as a futures contract. With knowledge of what derivatives are available to you, how each one will work in unison with cash markets, and market analysis in anticipation of lower trading, your decision is just whether or not you wish to make a decision. With prices via the index down less than 1% and futures a little over 5% from historical or contract high, this might not be a bad place to start making some of those decisions.
Class III Milk: Milk ended the day higher. Volume is paper thin and I can find little rhyme or reason for some of the movement. However, I continue to anticipate a higher milk price with today's lows believed a good place to start.
Corn: I recommend taking profits on long corn calls with July between $5.25 and $5.35. This is a sales solicitation. I recommend making a small percentage cash forward contract sale of new crop expectations. This is a sales solicitation. In the coming weeks, were December corn to produce a correction, I will be recommending farmers own the call option in December contract at a strike they would be willing to sell cash corn. This will allow farmers to maintain a long position with a limited risk derivative while making cash sales with no fear of missing out on a potentially higher price. I continue to believe cash wheat sales will be of benefit going forward.
Energy: Energy was mostly higher on the day, but found it difficult to hold on to gains. Gasoline is weak and this is the energy product for the consumer. If gasoline prices decline, I believe it will be a solid reflection of weakening consumer demand.
Bonds: Bonds were higher, but not by much. Bonds are expected to remain soft, but could continue to trade sideways for sometime to come. The speed in which the current administration is creating upheaval is astonishing. If only 1/3 of what is being claimed has been misappropriated is true, there is no telling what will be found in the coming four years. As excessive government spending is reeled in, I believe it will help to take away a great deal of the inflation aspects caused by the printing of too much money for seemingly no reason at all.
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. .
