In my opinion, the line in the sand is definitive. Bulls are more bullish and bears are more bearish. Both views have been proven by the large increases of open interest the past several weeks. As well, having caught the attention of commodity funds. Multiple factors have arisen this week to give alarm to those paying the high price for recently purchased inventory. Here are a few I have mentioned this week: Of concern 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 Dutch 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.
I have great respect for the Daily Livestock Report. Thursday's issue was fantastic in that it addresses the question of demand, and 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. Along with a great deal of volatility, the Fed lowering rates and retail rates move higher, there is no shortage of issues to contend with. Energy and feed continue to be variable costs that could impact the most well laid plans. With both of these markets not going down, it seemingly creates a narrower profit margin to producers. As profit margins are believed based upon an ever-higher price, it suggests that were prices to go down, it has the potential to cause great financial dispar. My best recommendation at the end of the year is to hold a strategic planning meeting. If only by yourself, or with others, laying out what your strengths and weaknesses are, will help you to improve your business. Many thanks to Craig Purvines and the "Cattle Range" for hosting our comments and to all we wish you a very Merry Christmas and a prosperous New Year from Swift Trading Company.
Christopher B. Swift is 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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