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by Luke Schwieterman, President, Schwieterman, Inc.
Market reaction to the partial opening of Canadian imports has been muted thus far. The market seems to be adjusting to the idea that the process of meeting the requirements of importing the muscle cuts will take awhile. The initial fears of meat pouring across the border in the short term have abated somewhat.
We are bullish cattle into the end of the year. However, there is too much at risk not to have put options bought as price protection
The USDA also indicated that they would begin immediately to formulate the rules for live imports. However, industry experts are anticipating that the rule making process will take long enough that live cattle imports are not likely to happen before the beginning of next year. Phasing in the product will allow the marketplace time to absorb the additional beef and support the US cash market in the interim.
Since Japan has accepted "third party" confirmation that no Canadian beef is exported to them via the US is also supportive of the market. We will be able to absorb the imports better if exports are assured. There are some in the industry that still have questions about the advisability of importing Canadian beef into the US since there has been no scientific explanation as to how the Canadian cow got BSE to begin with. It does seem odd that we assure Japan that there will be no Canadian beef in US exports while allowing our own citizens to be at risk. The cattle on feed report this month is estimated to be bullish. (This column was written before the report was released.) Analysts are projecting only 94.2 percent on feed, 104 percent placed and 104.4 percent marketed. If the "on feed" is 94 percent of a year ago, the number of cattle on feed for the seven states would be the lowest since 1999. Placements would be the third largest ever and marketings would be a record for July. We tend to think the placements estimates are high given that Canadian live cattle imports are non existent. We are bullish cattle into the end of the year. However, there is too much at risk not to have put options bought as price protection against the many issues that could occur. Should the live market open up before the end of the year prices would be on the defensive. Should Japan change their minds on how well the US is sorting out the Canadian meat there could be drastic consequences. We are optimistic at the moment but know from experience that about the time we get comfortable some significant event occurs that causes price to decline. Therefore, we want to have the downside protected with puts. The corn market acts as though it wants to become an outright bull market. The USDA surprised the grain industry with lower production estimates and the market reacted by trading significantly higher. Funds are reportedly huge shorts in the grain market and are currently offsetting those positions. If the funds decide to get long the grain market, prices could go quite a bit higher. We would advise producers to cover the next six months of feed needs with call options in anticipation of higher prices this winter. The harvest break we normally see could occur from higher levels. © 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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