Shootin' the Bull about a Novel's worth of events this week

Shootin' the Bull

Christopher B. Swift

In my opinion, so much transpired this week that it would take a novel to cover all the events. So, the short story is, the cattle market is in transition.  Rationing has curbed the consumers' appetite (Retail Price), encouraged alternative production methods (Dairy), driven some out of business (Tyson), and opened the door to exporting countries with beef (Imports).  All are dynamically impacting the US cattle and beef markets. The combination of factors leads me to anticipate further downside price action, but potentially limited as we trade through an enormous amount of information.  Producers have been slow to market inventory, whether it was too hot, or too low of a price, but it has backed up a percentage of cattle that will be marketed.  While still in transition, and a significant price decline to contend with, producers are urged to review what they have in hedges and work to adjust those to capture open position equity while maintaining the short position.  This can be done in a manner of ways, and potentially be of benefit to alternative derivatives that may not be able to be adjusted.  For those unhedged, the benefit may come from buying spring futures at steep discounts. Cattle feeders have a tremendously wide basis to work with in procuring inventory at lower prices this spring.  Options strategies are available to help manage procurement, and with this much price expanse, risk management is on the front burner.

Corn made a new contract high this week.  Grains and oilseeds are anticipated to continue higher with expectations of potentially starting a major bull market.  Grain and oilseed producing countries around the world are having drought issues, if not severe.  As well, the El Nino continues to threaten South American crops.  As the crop tour wrapped up this week, the take away is that the US crop is good, but not excellent.  When combining all of these factors, and the US dollar moving lower, demand for US grains and oilseeds is expected to be high.  Energy continues higher as there is no end in sight for the military conflicts.  Diesel fuel continued to set new contract highs through the week, with Friday no exception. Treasury Secretary Scott Bessent has received a great deal of attention this week by starting a bond buyback program and then doubled it.  This is selling short term US debt, to buy long term US debt, to fund further US government spending.  Inflation is soaring.  Core inflation, the rate of inflation, and commodity inflation are all at their highs for the year.  Commodity inflation is testing current historical highs through the Dow Jones Commodity Index.  Government spending, fraud, theft, taxes, insurance premiums on everything, and subsidies galore, have to be kept up or the weeping and gnashing of teeth will grow louder. With the President believed benefiting personally from equities higher, and all it takes to move equities is money, I don't expect this to slow anytime soon. Cattle producers are contending with a great deal of outside market forces that are impacting cattle.  With no shortage of risk to manage, get busy.

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