"Shootin' the Bull"

“Shootin’ The Bull”

Commodity Market Comments

by Christopher B. Swift

4/23/2021

Live Cattle: On Feed:105%, Placed 128%, Marketed 101%

Steer/heifer placement rate 62% steers and 38% heifers. Still in expansion, but dropped a percent from the last quarter.

In my opinion, the rally in the grains and declines in cattle prices have more to go. No doubt both may produce corrections, but the fundamental factors at play that are causing the price fluctuation are not anticipated to be resolved anytime soon. China needs and wants grain. An article read this week stated China's desire to seek alternative feed sources to help combat the high price and shortage of corn and bean meal. Some will view this as bearish to corn and beans as China may not need as much. I take it as bullish. China would not be seeking an alternative feed source were ample inventories of corn and beans available. Since there are not that many alternative feed sources, we find that China is still willing to pay top price for corn as on Friday, they bought 336,000 metric tons for 21/22 delivery. The importance of the hog market to China is seemingly greater than the price of corn.  China is not going to stop building controlled environments to produce hogs. The more they build, the more they will have to secure a clean feed source. So, cattle feeders are urged to not take for granted any downturn in corn price due to planting progress. I think getting corn in the ground this year will be the easiest in the past several years. It is what comes up and can be harvested that is of concern. 

 

For quite a while, backgrounders had an alternative marketing resource available to them. That being, placing cattle on feed themselves. Over the past 6 years, the worst corn prices were barely above $4.00. Today at $6.00 plus and an $.85 over basis in some feeding areas, backgrounders do not appear as gamey to do such. I believe they are opting instead to take the licking on the feeder cattle, especially if hedged at one of the beneficial price targets previously recommended and let someone else have the fun of feeding them. On the close only chart of August, there are 5 waves down from contract high. I perceive this decline as a wave 1 of C. I anticipate a wave 2 of C correction. This may take some time and unfold in a multitude of manners. Upon completion of wave 2 of C, I would then anticipate a wave 3 of C decline. This may come with summer drought, or the expectations that the consumer surge is not going to take place. I anticipate the remainder of this year impacting cattle producers, of every segment, to a point in which changes within their operation will have to be made. Whether it is from drought, high feed costs, or low cattle prices, the financial wherewithal of cattle producers is in grave jeopardy. Lenders see this and the up tic in interest from lenders is an indication they are attuned to the issues. If Fridays on feed report continues to show a heifer placement of under 38%, then it will lead me to anticipate a large number of heifer feeder cattle inventory to be available were drought to increase. At present, all factors continue to point towards there being too many cattle to be afforded leverage over the packer. It is my believe that some producers, at some point in the near future, will have to exit voluntarily, or be pushed out financially. 

 

Grains continue to move higher. Corn is anticipated to complete the wave 5 of a major wave 1 over the next week or so. I anticipate farmers to get 100% of the corn crop in early this year due to the dry weather. Then we wait to see what germination and pollination look like before it takes a turn in either direction. Upon completion of the major wave 1 in corn, a major wave 2 may begin to take place and create a significant sideways to lower pattern. Hogs are jostling back and forth. Bonds have maintained their price stagnation. Due to the stance of the Fed, and seeming backing of the government for such, I anticipate bond prices to move lower and the US dollar to continue trading lower as well. This is simply more of the same. 

 

Feeder Cattle:

 

Lean Hogs:

Corn:

  

Crude:

US Treasury Bonds:

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