Cattle Market Commentary 7/11

Live Cattle:

A spate of activity across the commodity spectrum this morning.  Inflation continues to simmer, although a tenth of a percent lower.  Futures have started off a little higher, most likely due to enormous positive basis and lack of selling interest after a $7.00 plus decline.  The shifts among those in the political arena is expected to cause some uneasiness for the foreseeable future.  I believe the top is in and one should consider carefully the amount paid for incoming inventory, as well as attempting to protect future inventory with what is available.  The unfortunate aspect is that what is available has a approximate $6.00 haircut that comes along with.  My personal opinion alone is that one has to stop paying the price for feeder cattle, as seemingly the risk to reward ratio for amount invested is skewed greatly.  Wednesday saw a huge roll out of August and into the other months.  Still in all, the open interest declined with this roll, suggesting some are not as interested in participating at this price level.

Feeder Cattle:

From intraday charts, it appears that feeder cattle have made a 3 wave move lower with today’s rally perceived as the wave 4 correction.  This leads me to expect further downside trading before a rally of significance.  Downside target for August is $251.60.  A correction of entire decline from the $264.50 high would then be anticipated. I get the sense of consumers embattled with unease of the political environment and no doubt feeling the inflationary aspects.  Some folks are paying tip top price for cattle in what I perceive as a very uneasy time of economic turmoil.  Futures traders have taken all premiums away and the cattle feeder is your only friend left, and hope nothing sways them from deciding the spread between starting feeder and finished fat is too wide.  There is not much else but pure direction to look for, as the basis has converged as thought, creating a seemingly profitable time frame for those who use futures and options.  Everyone is working with the same price now.