Economic growth ahead?

by Luke Schwieterman, President of Schwieterman Inc.

The Dow Jones Industrial Average traded above 10000 this week, the first time since October 2008. Metals have rallied along with the energy market. Grains have participated in the rally with the lows posted in early September now being viewed as the “harvest low.” Cattle are trading at $84 this week. Commodities have a good feel to them right now except for the US dollar, an indication that inflationary times maybe upon us.

It is evident that new investment money is flowing into commodities as a hedge against inflation. How much of the inflation threat is hype or real is a question to be answered in the future. For now, the money flow tends to favor higher commodity prices in the near term.

The cattle on feed report for October was deemed neutral in the futures market. Cattle on feed were 101 percent of last year with the trade looking for 100.3 percent. Placements were 105 percent against the anticipation of 105.5. Marketings were light at 96 percent compared to the average trade guess of 97.8. All in all, this neutral report will support prices in the near term since the cash price showed us some strength.

This is not a run away bull market by any means. What it lacks is demand, and demand will increase when people can get back to work. With unemployment at 10 percent and looking to increase for another few months, demand, especially in the restaurant sector will lag behind.

If we can believe that Wall Street is looking down the road six months, then the real economy of Main Street will begin to improve. The inability of the economy to bounce back quickly is tiresome, but there is hope that perhaps we are not too far away from beginning some form of growth period.

Our advice for cattle producers continues to be buying put options on cattle being fed for as far out as six months. Even though we are optimistic the future prospects of improving cattle price, we understand that the risks continue to be high in the current market climate.

Use the options to create a win win hedge position. Corn has change trend from sideways/down to up and it did so when the fundamental picture was not supportive of higher prices. That means that there are other market forces more powerful than fundamentals. It will likely get very interesting from now until summer.

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.