Live Cattle: There is so little to comment on, that hasn't been beat up one side and down the other, I revert to what is taking place. There is too much processing and production capacity for the available inventory. Since it will take 13 to 18 months to increase production, if started today, it seems that going forward, with more capacity than material, it will cause shrinkage in production capabilities, or have them run for as long as possible on lower volume, relying more on price increases. I am very optimistic with the incoming administration, but continue to be skeptical of the consumers ability to deal with expected inflation and further unexpected bouts of. Lastly, the southern border is of even more interest as it is possible that the US could gain several hundred thousand head of cattle, while losing several million mouths to feed.
Feeder Cattle: The Tiger trap is real. While there is little you can do about it, or change it, just the recognition of may help to break the fall, or at least not be jabbed by the Punji sticks on the way down. My first and foremost thought is that since there is nothing you can do about it, don't concern yourself with a price that is not available to you. If that price ever does become available, then how you positioned yourself prior to will be the benefit. A long put option creates the widest spread between cash and where you would be short futures. Futures creates the narrowest basis spread, but allows no room for error to the upside. Cash may never move and futures would gravitate to the cash levels. Lastly is the long at the money put option and the sale of an out of the money call option at a price that you can live with regardless of price at the time of marketing. This spread splits the difference between the Put and the futures in the basis spread, but offers a predetermined upside potential for which in some months could allow for full convergence of basis with the index where it is today, and the loss of premium would be the detriment. All but the long put have margin requirements and can be even more capital intensive than at present. There is little room for error at the moment with such great capital outlay to produce a pound of beef.
Hogs:
Corn: Grains and oilseeds benefited greatly from being excluded from tariffs for the time being. July corn closed above $5.00 today, a feat few could have imagined just a few weeks ago. With previous recommendations to have bought calls, cattle feeders should be well positioned for this higher price move. A conference I attended this past weekend had several well noted speakers. None had very high prospects for grains and oilseeds to rally. I like being a contrarian at the moment. I've included some highlights of this past weekends speakers.
I recommend corn farmers to buy the December call option at the strike price they would be willing to market physical inventory. This is a sales solicitation. I recommend soybean farmers to buy the November call option at the strike price they would be willing to market physical inventory. This is a sales solicitation. Why? Why would a farmer buy call options when they need to sell grain and oilseeds? Because, were the price to move to the levels desired, there would most likely have been a different narrative to have put them at that price. Hence, you may have reservations on making sales in fear of "missing out". Ownership of the calls may, or may not, give you the courage to make sales when prices are rising, knowing you can still have participation in. I most likely would not look to make cash sales and then buy calls, as the reason you are marketing would be that you think prices have peaked.
Energy: Energy was soft today as President Trump reiterated his stance on increased US oil production. At present, US oil production is the highest it has ever been. Therefore, to increase further may suggest pushing prices sharply lower, with negative crude prices now always a possibility. I don't think oil companies want to see that. I did like the need for more natural gas burning electrical generation. The need for electricity is phenomenal and the infrastructure of very vulnerable, as we've seen in California. Today's lower price action is believed an opportunity to top off farm tanks, or book some spring planting needs. I expect energy prices to continue to firm.
Bonds: Bonds seem to have the least amount of fluctuation from President Trumps inaugural speech. The US dollar sold off sharply today, but bonds rallied only slightly. Although a lot of actions are being sought, it will take time to get most of them started.
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
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