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Market Notes by Luke Schwieterman, President of Schwieterman, Inc. The February cattle on feed report indicated feedlots placed 102%, on feed 103% and marked 100% of a year ago. Traders deemed the report bearish. We are on record about the optimism we have with higher cattle prices. Last year at this time, cattle price was trading in the $68.00 area versus $78.00 this year. We've seen extraordinary placements in feedlots the last couple of years and remarkable marketing numbers nearly every month. This demand bull market is alive and well as near as we can tell, and we look forward to the trends continuing over the at least the next several months. With one of the worst winters in history, producers are telling us stories about calves on grass/wheat actually going backwards -- eating all of the available grass (wheat) and weighing less than when originally placed in the pasture. Arguably, not everyone has had this experience but it demonstrates how tough it's probably been to grow calves this winter in general. This will cause a delayed marketing at a later date. Early placements of feeder cattle in the feedlots over the last couple of years and the same weather conditions will delay marketings as well. Our point is, between the increasing domestic demand, the promise of increased exports due to the Mad Cow situation and the tough winter, we believe cattle price will move counter seasonal this spring and summer. Generally speaking, cash cattle price trends down into mid June. We think price will trend up instead and look for cash price to perhaps hit the mid 80's while the high 70's become the cycle low price. We are bullish price but are concerned about producers being able to maintain profits in the current unsettling economic climate. The economy, in our opinion, is the key to the cattle market more so than the supply fundamentals. By that we mean if the economy continues to allow exceptional demand, then prices can continue their trend. If the economy does not recover quickly, prices may have to decline in order for demand to continue. The decrease in interest rates was a welcome surprise that will help bolster the general economy. Homeowners who missed refinancing at previous low interest rates are now doing so. The reduced mortgage payment, created by refinancing, increases discretionary income and allows the public to continue spending. A tax cut retroactive to the first of the year would have the same effect (increasing discretionary spending). However, current energy costs continue to be a drag on available cash in the economy. Should energy prices drop by spring, and we think they will, this would further enhance the economy. At the time of this writing, the US is making strategic bombing attacks on Iraqi radar sights. It was only a matter of time before Iraq tested the new President and we think this will have a stabilizing effect. All in all, we are encouraged that prices can and will continue higher. The downside risk however is always present. The Mad Cow disease is a subject that just doesn't go away. Fortunately, the scare in Texas of feeding bone/meat meal to 1200 cattle was a one-day news event. The beef supply in the US is safe - so far. The thought of what might happen if Mad Cow was discovered or rumored to be discovered would have devastating results. Therefore, we encourage all cattle producers to have price insurance in the form of put options bought on all cattle being fed. That way, producers can at least sleep at night knowing the downside risk is covered. Schwieterman, Inc. is a Registered Commodity Trading Advisor in Garden City, Kansas. The information herein is based on data obtained from recognized statistical sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to the accuracy or completeness. Past results are not necessarily indicative of future results. The risk of loss in trading commodity futures contracts can be substantial. You should therefore consider whether such trading is suitable for you in light of your financial condition. You may visit their web site at www.upthelimit.com . |
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