"Shootin' The Bull" Commodity Market Comments...
For Thursday, December 19th
Live Cattle: Of concern today is a story from Zero Hedge about frozen French fry producer Lamb Weston. While its earnings were bad, the reason for is of the most interest. As a major supplier to McDonalds, a reason for the lower volume of sales was due to a slow down. "To combat a major slowdown in sales, McDonald's revamped its meal deal targeting working-class and middle-class customers who could no longer afford soaring Big Mac prices due to the inflation storm sparked by failed 'Bidenomics.' The meal deal ignited a value menu war with other major quick-service restaurants. Now, the burger chain is planning a complete overhaul of its value menu in early 2025." When the largest seller of hamburgers says things are slowing down, I have to take notice.
Next is the Tulip Bulb mania. If you are unfamiliar with this, you need to read up on it. While the Tulip Bulb mania was not an economic issue, it was truly a mania as prices soared for something of no economic value. This event continues to be used to outline bubbles in markets. While cattle do have great economic value, and are obviously elastic with great price movement over small changes in supply and demand, the recent mania to own cattle, at any price, is believed to be a bubble as well. The break in the equities markets, and no further rate cuts down the road, leads me to expect another bout of inflation. As cattle are already inflated, they could inflate further, or higher beef prices have an unfortunate impact on the consumer, for which inflation shifts discretionary spending away from beef.
When the shoeshine boy starts giving stock tips, the market may be nearing a top. That is an old adage suggesting that when the shoeshine boy knows about something, everyone else does as well. This week, the Wall Street Journal ran an article about the high price of cattle. When news about cows makes it to New York in the Journal, everyone already knows the story.
Price action was definitively decisive today as futures plummeted and packers can't buy cattle cheaper. It may not matter any longer about the cash markets today, as there are chink's in the armor that suggests the consumer, economy, and next administration will be nothing like the past 4 years under the Biden administration. With the belief that commodity funds hold significant long positions, and it possible the consumer unable to continue purchases at these lofty beef levels, they could leave overnight. With a loss of almost 4K contracts on Wednesday, when we see Thursday's change in OI, it may help to determine the funds are taking their football to go and play in another market. Or worse, they could get short.
Lastly, I have great respect for the Daily Livestock Report. Today's issue was fantastic in that it address the question of whether there is an increase of consumption per capita, or due to the unknown millions of illegal immigrants that may not be in here in a few months. I think this issue has been thrown under the table many times, but I have mentioned it in the past that the feeding of these illegal immigrants is not being factored into the demand table.
On the bullish side, there are fewer cattle than we've had in a very long time, and cattlemen appear to want to own cattle.
Update on Head & Shoulders pattern in the cattle market.
