"Shootin' The Bull" Weekly Analysis...

For the week ending August 25, 2023

In my opinion, the stagnation of cattle prices continued.  With mounting input costs, stagnation of price creates stagflation.  That is where I believe the cattle market in general is.  Producers and purveyors have pushed prices to levels that are creating reserve in bids and offers.  Going forward, whether correct or not, I have to believe that cattle feeders will need some sort of push to get them to bid higher on incoming inventory.  Whether that is from an increase in packer demand, or the need to meet a contractual agreement, I don't see much else that would cause cattle feeders to become more optimistic about higher cattle prices. Along the same lines, I think grocers and restaurants would have to send signals consumers were buying more for packers to increase slaughter.  My perception is that the $17.00 increase over the past couple of weeks in box price was due to a slowing slaughter pace and not an increase in demand.  While I have been more than perplexed on consumer's resilience to slow spending, further signs or signals are believed appearing.  This week, diesel fuel made a new contract high.  Gold was able to halt its steep decline and bonds rallied sharply off a new weekly low made earlier this week.  The idea of the Fed taking their foot off the proverbial gas pedal of raising rates, is believed to have created a mild "risk on" environment of commodity and equity markets.  The sheer resilience of the consumer continues to have me in awe of how much money there remains in circulation.  Inflation is too much money chasing too few of goods. The amount of money has been so great, that raising interest rates has had very little impact on consumer spending.  Therefore, further action is believed needed and the allowance of inflation to run higher, whether admitted or not, will suck money from the system like nothing else can.  Hence, long way around the barn, and probably twice, but I believe the resilience of the consumer is being chipped away. 
Feeder cattle prices remain in a well-worn range.  This is a very unusual chart pattern and I have to go back to 1993 and 1994 to find a sideways trading range similar to present. Even then, there is not a lot of comparison due to the entire range from contract low to high was only $11.50.  Just the range alone in this stagnation is $9.00.  So, take that one with a couple of grains of salt.  Nonetheless, the sectors of production above backgrounders are seeing cost of production rising sharply, and no higher prices for marketings.  The best part of all of this is regardless of whether hedged or not, the basis convergence at the level of futures is believed significantly more beneficial than had hedges been the profit potential.  Note as well that by physically marketing as close to the expiration of a futures contract, allows for full convergence of basis.  The next most probable move in feeder cattle will come from either the cattle feeder having to bid higher, or inflation impacting consumer discretionary spending. The stagnation in price suggests neither is known yet. 
The pro farmer tour was pretty much as expected.  Corn is in pretty good shape and beans are questionable.  The corn in pretty good shape is believed to keep it meandering up and down a little until harvest begins to reflect hard numbers.  The beans being questionable, leads me to anticipate them moving higher as the crop tour may not be able to predict how beans pollenated in 100-degree weather this week.  We made several recommendations this week on buying soybeans.  Wheat continues to be in a bear market and dominated by Russian interference.  This week's trading has done little more than strengthen already perceived ideas of price direction.
This week's price action of bonds, and Fed statements, helped to strengthen my hypothesis.  As the Fed is tasked with lowering inflation, and just raising rates not having much impact on consumer spending, more aggressive action is believed taking place.  That being, stop raising rates and let the inflation run for a little while.  I take that from the last snippet on today's speech from Powell.  "Given the magnitude of its rate hikes over the last 18 months, however, Powell added the Fed is "in a position to proceed carefully" as it mulls futures actions."   In a position to proceed carefully suggests they have a little wiggle room.  As we have already seen this week a new contract high in diesel fuel, beans back over $14.00 in the back months, cattle higher, and bonds roaring back from a new weekly low, inflation appears rising.

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
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