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Shootin' the Bull about humans and computers

Swift Trading Company - Mon Feb 26, 3:09PM CST

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift


Live Cattle:

Today's price action strengthens my theory that once humans have made their move, the computers and a few speculators then gyrate prices in manners believed to help them profit. This helps producers in some ways by producing a price in the futures market that may never be realized in the cash markets.  Friday's information is perceived as bearish.  Not only are there more cattle on feed than last year, more placed than anticipated, weights increased, as well as imports. The placements for February are anticipated to supersede the month of January by 10% to 15%, suggesting an over 105% on feed when the March cattle on feed report is released.  Not much has come true in the cattle supply side.  Expansion has yet to take place, robbing the slaughter plants of heifers, a few are losing money from cattle placed in the 3rd and 4th quarter of last year, and there are no projections for any feeder steer to breakeven, regardless of cost of gain. It looks as if you will need every penny you can garner from sales to breakeven.  Producers are dealing with a very strong divergence of basis.  As we know it will converge, it is the interim that is perplexing.  While traders are willing to continue to diverge prices, making futures the highest price to market inventory at the time, I continue to recommend you lay off risk.   

Feeder Cattle:

The risk being assumed to produce a pound of beef leaves little to the imagination.  As even more is being asked, the risks will continue to increase.  Whether this rally is simply a fundamental function of price discovery, or there is a ploy to gain market share, the risks assumed are immense.  It is possible this will be very slow attrition from those wanting more market share.  There is no way to prove this yet, but a ploy to use would be to jack up futures prices and pull the rug from, in order to help achieve such, would not be out of the ordinary.  Regardless, the idea of cattle moving sharply higher, that would cut profit margins from the cattle feeder to the consumer, would seemingly be counter intuitive towards any stability of cattle/beef production.  Two thoughts to consider.  Once or if vertical integration is reached in some form within the cattle industry, a few will enjoy profits like never before, while the rest will be anticipated to work more for less. Second, the Fed is tasked with quelling inflation and your desire to see feeder cattle prices sharply higher is betting against the Fed.  All of my career I have heard, you don't fight the Fed.  If the current bout of inflation is nearing an end, the next bout will be believed recession. 


Hogs were mixed with spot down and the remainder of the months higher.  I remain perplexed as I still don't understand the rally.  The index was up $.32 at $79.10.  


Corn traders took some profits late in the session.  This pushed corn off the lowest price for about a $.07 to $.08 higher close. 

Bean traders did as well, but unable to produce the rally that corn did.  Beans have yet to move near full carry, so it appears there is quite a bit more to go in the beans.  As we know farmers will have to sell more to raise the same amount of capital needed just a month ago, it leads me to anticipate further selling.  Especially with March delivery on everyone's heels.   


Energy was strong today.  Having reversed Friday's lower trading, I am still perplexed of the direction for the anticipated trend.  At present, energy remains in a well worn trading range with expectations of a major trend once started. 


Bonds were lower for most of the day.  A trade of June above 119'23, today's high, will lead me to believe the major wave 2 nearing completion with a major wave 3 rally anticipated. 

This is intended to be or is in the nature of a solicitation. An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of the margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 


On the date of publication, Chris Swift did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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