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Market Notes by Luke Schwieterman, President of Schwieterman, Inc. The June cattle on feed report indicated cattle on feed for the seven states up two percent, placements up three percent and marketing's up only one percent. The largest share of placements were once again found in the under 600 pound weight category. We are bullish on the cattle market. The seasonal tendency for cash cattle price to deteriorate into June is now behind us. Feedlots appear to be very current with slaughter weights well under a year ago. Retail price of choice beef is at all time record highs for the second month in a row and with beef production expected to decline into fall and winter, it would appear that retail competition in the meat case could be brisk with pork. The hog and pig report at the end of June was bullish with sow inventory one percent less than last year which took the trade by surprise since they expected a one to two percent increase. With less pork to compete in the meat case, beef should be able to hold its own over the coming months. The Tyson/IBP merger is being met with mixed responses in the industry. Obviously, the competitiveness of having one less packer is not long term bullish in our opinion. We find it interesting that within a week's time, courts in the US find that Microsoft doesn't have to break up into smaller parts while Tyson must merge with IBP creating a larger entity. Only time will give us some indication if this marriage will benefit the producer. Associated Press reports that 440 Idaho producers have been offered $79 million not to irrigate 154,000 acres as part of an electricity buy-back program. The Boise-based utility thinks it makes sense to pay growers up to 15 cents a kilowatt hour for power than to pay 30 cents or more on the wholesale market to meet demand. To qualify, a producer has to save at least 100,000 kilowatts. We wonder if this could be the beginning of a trend. The aluminum industry is closing plants in the Northwest for the same reason. If this idea catches on and expands, we may find ourselves being able to cool ourselves while paying more for food as a consequence. For cattle producers, hay prices may be affected by reduced irrigation on alfalfa acres in Idaho. The economy, in general, appears to be in the recovery phase. The Feds reduced interest rates another 1/4 point, the tax refund checks should be in the mail this month, gasoline and natural gas prices are dropping and there seems to be some optimism in the stock market for the future. All in all, the issue of discretionary income drying up causing further contraction of the US economy may be fading. And it is good news since this is probably the single most important key for the beef market as well as all other agriculture markets for higher prices over the months to come. On the horizon, we currently see higher prices for fat cattle as well as feeder cattle. The industry must keep feedyards full and the only way to do that is to place smaller cattle. It would appear that the trend of placing small feeder cattle in feedyards, which started because of severe drought conditions, may have changed the way feedyards do business in the future. Perhaps traders need to understand that increased populations in the feedyard does not necessarily mean more cattle will be slaughtered. We suggest that producers buy put options as price insurance on all cattle being fed. We also recommend buying feeder cattle call options to cover future feeder needs. Feedlots and cattle producers should consider buying corn call options to cover feed needs. Generally speaking the 4th of July holiday posts the high or the low in corn prices. This year it appears to be a low. The acreage report at the end of June indicated fewer corn acres were planted than the trade thought and we think there will be enough weather related problems to begin a substantial rally in the corn market. 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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