Takeaway

The presenter highlights a significant rally in cattle futures, driven by a cash feeder market that "ripped and exploded higher." However, he is cautious, arguing the rally is fueled by short-covering rather than new speculative buying, as evidenced by declining open interest. The core risk is that macroeconomic headwinds, particularly inflation and potential Fed rate hikes, will continue to deter long speculators and weigh on consumer demand.

What the presenter said

• The cash feeder market "absolutely ripped and exploded higher" in the last week and a half, with the daily index for the spot month up over $10. [00:47, 01:00]
• Technically, the presenter believes the cattle market put in a bottom a few weeks ago. [02:50]
• Despite the strong price action, open interest went down last week, which he interprets as short-covering rather than new longs entering the market. [03:37]
• He would feel more comfortable with the rally if open interest increased on up-days, as it would signal the return of the long speculator. [03:50]
• Inflation and the market pricing in an FOMC rate hike are seen as significant headwinds that could make long speculators fearful. [04:40]
• Packers ran the biggest weekly kill since May, which is a concern for beef values. [07:07]
• The hog market is lower due to weak cash and cutouts, with futures' discount to the index failing to attract new buying. [08:11, 09:14]
• In grains, November soybeans experienced a "nasty key reversal on Friday," giving back all of Thursday's gains, suggesting profit-taking by funds. [09:51, 10:18, 10:57]

Trade ideas

None stated. The presenter's market view is that while the cattle market has likely bottomed on strong cash trade, the rally is suspect as it appears driven by short-covering. He remains cautious due to macroeconomic risks like inflation and potential rate hikes, which could suppress speculative buying and consumer demand.

Levels and data cited

• Oct Live Cattle: up 672 for the week.
• Oct Feeder Cattle: up 1235 for the week.
• Nov Feeder Cattle: up 1345 for the week.
• Cash Feeder (North): up to 225.
• Cash Feeder (South): "226 stuff".
• Feeder Daily Index: up over $10 for the spot month.
• Choice Boxes: down 243 on Friday, hovering around the 376 mark.
• Crude Oil: "well over $100".
• COT Report: Funds are long about 47,000 contracts; open interest decreased last week.
• USDA Data: Weekly kill was the biggest since May; weights dropped below a year ago.

Risks and what would invalidate this

• Inflation and a potential FOMC rate hike could suppress speculative buying.
• High diesel prices are historically not conducive to a sustainable rally.
• The rally is based on short-covering, not new long participation.
• Inability to hold boxed beef values as slaughter rates ramp up.
• Domestic demand for beef is weak, described as being in the "back seat".
• Geopolitical "wild cards" including the Russia-Ukraine conflict and issues in the Middle East.
• The potential for government intervention.