"Shootin' The Bull" Commodity Market Comments...
For July 14, 2022
Live Cattle: Fats are lower today. There is not a mindset around guarding the possibility this won't last. There is an old commodity story that may or may not fit with this particular situation, but I believe worth mentioning, just in case it is. "A man is eating his lunch on a dock, watching the little fish swim around. He drops a piece of bread and watches the fish come to feed. The next day, he comes back with a slice of bread and more fish have now come to join the feeding frenzy. By weeks end, the man is feeding a loaf of bread to a school of fish that have gathered. On Friday, the man walks to the end of the dock, lights the fuse on a stick of dynamite and has fish for a month." I think it very possible, maybe not probable, but possible that the rally was somewhat allowed. Traders just didn't fight the buying, allowing it to soar the way it has. Time will tell. Willingness to pay, or ability to consume more, appears solidified for the time being. Margin gained by cattle feeders is believed coming from a loss of margin to the packer. One thing is for sure, fed cattle, feeder cattle, and beef prices are high. The consumer is believed having a difficult time making ends meet. So far this week, from the close on Monday to this afternoon, October has gained $1.45. Not a very impressive move to help return exceptionally high input costs.
An article read this morning leads one to believe that by the abandonment of risk management, cattle feeders can turn a $150.00 loss per head to a $150.00 gain per head by December. Article Here. The two aspects of profitability seem conflicting. That being, he states that with December at $145.00 it reflects a profit. However, by not hedging, there is no guarantee of profit. I respectfully disagree with this article. Not that cattle prices can't or won't go higher, but the disregard for risk is believed poor business management.
I recommend adding to previously recommended short October and December live cattle. This is a sales solicitation. This recommendation is not intended to lock in a profit, as there is none available. This will be only to help pay back what is owed in expenses.
Feeder Cattle: Deep pockets continue to pay higher prices. As these buyers get their fill, start rooting for the next group to bid even higher. As the summer sales are wrapping up, and a lot of inventory has been moved at higher and higher prices, will they continue to bid for lesser quality inventory at these price levels? It is possible, but not sure probable. Albeit from fact, here is what I think. If this is a power play to jockey for a seat in vertical integration, pushing prices so high has caused some to not be able to participate. This starts to push the financially weaker out first. Next, it is possible that the price falls significantly. This would cause those who overextended themselves, attempting to keep up with deep pockets, to be placed in a tight financial position. While my predictions may not come to fruition, just having an opinion, or several, helps as the market moves to see which scenario it is following or not, or something completely different. So, we already have the piece of the puzzle that suggests deep pockets are assuming significant risk. Now we wait to see what market action is going forward. Higher, and either these deep pockets are still around, or new ones showing up every day. Lower, and it may well be that the conspiracy theory has some merit.
I recommend keeping fence option hedges to fruition of the time frame finished. This is a sales solicitation. If marketing in these early sales, prior to expiration of the August contract, then exit the previously recommended long put option when the sale of the inventory is made, and not before. This is a sales solicitation. Recall that the hedge recommendation for sales being made prior to expiration of the futures contract was to own put options only. The price rise of the index and premium being paid is believed to have well offset any loss accrued on the option. As well, with time, most all of those puts still have some value.
Lean Hogs: Hogs were lower today, but not by much. July went off the board with no event. I anticipate hogs to trade lower.
Corn: I think it will be difficult for USDA to raise the number of acres planted going forward. I don't believe USDA factored in any of the drought situation that is believed causing some acres, not dedicated to silage, to be cut for silage. I don't believe USDA will be able to raise the bpa on corn above the current 177. I anticipate traders to bid corn higher into the next WASDE report. I anticipate cattle feeders to get aggressive on purchasing feed stuffs as the price paid for incoming inventory leaves no room for error. I recommend buying call options on December corn and owning futures in the March, May and July contracts. This is a sales solicitation. No, I do not believe that if all cattle feeders bought corn on the same day it would move corn. I do anticipate energy prices to move higher and knowing that Europe is suffering a similar drought, and a war, I anticipate corn to remain firm. Beans came off their lows today. Although still closing lower on the day, I am not bearish beans at the moment. The bean meal market did not move lower as I had anticipated. This suggests the need for feed stuffs, even as bean oil is moving lower.
Energy: Energy started the day off down sharply. Before the close, it got plus on the day and only closed slightly lower. I am skeptical about the meeting of the President with the Saudi's. I doubt they will promise much to someone who has threatened them over their human rights issues. A trade above $3.71 of September diesel fuel will lead me to believe the uptrend is resuming. On September crude, that same point is believed $102.00.
Bonds: Bonds were lower today with some twists in the yield curve. Equities started sharply lower, but as seemingly always, able to climb back from sharp declines for which is believed humans selling and computers buying, spoofing them from their positions. The Eurocurrency made headlines today as it traded par with the US dollar. The man handling of rates has caused a significant rise in the US dollar and put a damper on exports. I anticipate the Fed to move again on rates this month and as most, believe maybe they will slow it down and allow all of us some time to heal on our own. We can only hope.