In my opinion, some changes were noticed this week. Of the one most notable was further recognition of the agenda in place by others. As the impact from becomes more obvious, it has begun to make cattle producers, in every sector, a little nervous at the current price level. Especially those who show no regard for risk. Believing the packer will make further attempts to bring profitability back to black, it suggests box prices will remain elevated into the grilling season. This factor is believed limiting beef supplies, causing the price of beef to remain elevated, helping to ration the product to the consumer by keeping retail prices high. If you want to spur demand, you will have to lower the price of beef. To lower the price of beef, you will have to increase supplies. If supplies are increased, driving down the price of beef, it could well spark a rally in the live cattle for which prices could move to levels in both beef and cattle for which no one could afford. I think this the least likely scenario going forward as the agenda has a great deal of time and money invested into it and it will take another 12 to 18 months to even begin to see what beef cattle expansion may look like. Why so long? Liquidation may still not be complete yet, and you have to stop one before you can start with the other. On another note, the divergence this week with cash steady to better and futures sharply lower suggests traders and packers have little aspect for improving cattle prices going forward. Lastly on the fats, the open interest continues to plummet. This suggests fewer are interested in holding positions overnight. While it opens the door for a return of investment money to the market, no one appears to be knocking on the door.
The feeder cattle market is believed the one to watch. The decline in the index suggests cattle feeders are speaking with their wallets. The futures this week produced closes for which are believed to suggest further downside price movement. Feeder cattle are just too high to profit from any traditional way of feeding. Without being privy to beef sales or formula trades, the cattle feeder is projected to continue with losses for the foreseeable future. While some balk at the dairy/beef cross, the cement is drying on this line of production for which once solidified, will from now on be a growing part of beef production. You are correct that this won't make up the lion's share of beef production. However, any percent the cross does, is one more percent the beef cattle does not. There appears to be margin within the feeding of the dairy cross steers that is not available in the beef cattle. This makes it very attractive to those who are more money conscience. Towards the end of last year, my projection was for a major triangular price range to form that would mark time, allowing for the agenda to become more solidified. As it has, the triangle has begun to form. With a little help from the Moore Research seasonal tendency books, it appears feeder cattle prices decline into the first of June and then rally to the end of July. Potentially, with the formation of the triangle, one may want to examine their position carefully upon close proximity of the price to the bottom of the triangle, or more closely towards the end of the month. I think it possible that prices may rally into the July video sale time, but by how much, and how close to the top of the triangle, will remain a guess. Expectations to the end of the month are for the feeder cattle index to trade near $230.00 and August futures near $240.00.
Energy prices remained volatile all week long. New lows were made in gasoline and crude oil this week before a rally that started Wednesday morning pushed all three to the highs for the week. By Friday though, the rally was fading, leaving all three still in bear markets. I expect energy prices to trade sharply lower. The diesel fuel has been the leader and is expected to continue to lead them lower. Bonds were unable to do much this week as Japan's economic issues continue to plague the largest holder of US debt. Them selling the US debt issues are believed what's holding the bonds down. All other aspects of the US's economy will be refreshed next week with the CPI, PPI, retail sales, and new home sales data released. With expectations of softening, hopefully breaking some of the stagflation, it would lead me to expect the bonds to rally. My thoughts this week on the continual invasion from the south, to the allowance of demonstrations that destroyed property and destabilized lives, are such they could not be included.
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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