Live Cattle: Cattle feeders continued with what appears to be buying feeders at an inflated retail price and marketing into what is available at a discounted wholesale price for fats. September feeders minus February fats closed at a spread of $112.85. From the last low of any significance on 5/28, the increase of the spread has been 28%, while corn has only lost 9%. Live cattle futures contracts are in a varied state, but all in a very positive basis. Feeder cattle futures are in an inverted carry, were there a carry on cattle.
All of the above makes for the most expensive cattle placed on feed to date, further exposing cattle feeders to wider negative margins at the start and total reliance upon a higher price for fats. The boat appears to have developed a significant starboard list for which some may begin starting to get a little wet. Further tipping would be expected to keep those on the port side drier than those on the starboard side. As well, were a few to fall off the boat, the slight rebalancing of participants could stabilize the list, or send everyone into the water at once on the port side, regardless of your position on the boat.
Feeder Cattle: Futures traders stepped up to the plate today and gave backgrounders, and all weight classes under, excessive premium to work with. Traders even perked up November to a negative basis by $3.50. While none of this is foretelling of future price direction, it does reflect where to sell cattle at their highest price. That being, the futures market. As cattle feeders appear solely dependent upon a higher price to return input costs, the backgrounder is in sole reliance of the cattle feeders ability to manage some portions of unmanageable risk, while still paying inflated retail price for inventory. In my opinion alone, this rally is about garnering market share, and in doing so, great risks are assumed by everyone. The polar opposites of farm income between row crop farmers and livestock producers is believed producing a great deal of the higher bid on feeder cattle, making it more difficult for some to garner the market share desired. Although seemingly impossible at the moment, but any higher movement in corn prices would be expected to increase the negative margin to cattle feeders, and potentially have some farmer/feeders forego livestock production for farming. This is a factor that would be expected to help right, or flip the boat.
Corn: December corn was not as fond of staying under $4.00 as has the September contract. With new contract lows and a bounce, a few days sideways, and another new contract low, would be anticipated to bring the bottom of corn closer. Beans and wheat were lower as well. The November of '26 beans fell as well, stopping out most of the previously recommended positions. An issue with beans is soybean oil. The increased mandate for bio-diesel, and higher energy prices over the summer, gave great rise to the crush for soybean oil. With this having driven soymeal to new contract lows, and now having lost what may have been an energy bull market, the oil may not be able to support the beans on their own. This does not make me bearish beans, but will see what transpires over the next couple of weeks.
Energy: Energy started the session off sharply higher and ended sharply lower. This helps to continue to change my analysis from bullish to tepidly bearish energy. Were energy to trade lower, I would anticipate it being from an economic slowdown than increased oil production. Nonetheless, this is something to watch out for. A trade of October crude under $61.99 would go a long way in suggesting a bear market is being formed.
Bonds: Bonds were lower, but were sent sharply lower earlier in the session before regaining the majority of the loss. Bonds remain having broken out of a triangle to the upside and until a new low is made, will believe higher is the path of least resistance. This week if pretty void of government reports that would move the bond market. Next week though will have multiple reports that have the potential to move interest rates.
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
This is intended to be or is in the nature of a solicitation.” Futures trading is not for everyone. The risk of loss in trading futures can be substantial; therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not indicative of future results, and there is no assurance that your trading experience will be similar to the past performance.
