Crude Oil Wrapped Bacon (and Beef) by Attain Capital

The first month of 2015 has been anything but dull in the futures markets. Many point to Crude oil’s Unbelievable sell off, or the Swiss Franc shooting up around 25% against the U.S. Dollar, but what we’re noticing down here on the front lines of commodity trading is the meat markets big run up might finally be coming to an end.

(Disclaimer: Past performance is not necessarily indicative of future results)

The meat markets are some of the more interesting futures markets to discuss, because there are so many factors outside of the usual stuff covered on CNBC that can affect prices. One example of why the cattle market is oversold via cattlenetwork.

“While most agree that cattle futures are oversold, the futures weakness creates a sharp contrast to high feedlot breakevens, which will continue rising for another month or two. Feedlots are facing negative margins with cash prices lower than breakevens and even weaker Live Cattle futures contributing to moderate feeder cattle demand at this time.”

Meanwhile, there was debate over whether a recent policy “Country-of-Origin-Labeling” or COOL handed down by the U.S.D.A. is what halted demand for higher priced meat products. The explanation via Farm Futures.

“COOL did not cause the declines in livestock exports to the United States, which largely coincided with a substantial global economic downturn that sapped demand for more expensive meat products,” notes the study, authored by C. Robert Taylor, Ph.D., an Auburn University Professor. The study, released by the U.S. Cattlemen’s Association, builds on an ongoing dispute between the U.S. and Canada and Mexico regarding COOL. The two countries say it violates World Trade Organization regulations.

Whatever is happening in the feedlots and international trade agreements – it’s hard to ignore that a big part of what’s going on is strength in the US Dollar. Meats, like crude Oil and nearly every other commodity, are priced in US Dollars. That means, all else being equal – a rise in the Dollar would mean a decline in beef prices to keep equilibrium. This doesn’t make sense to non economists, and those in the US, who don’t usually think of the dollars in their pocket appreciating or depreciating. But it’s there nonetheless… with a strengthened dollar buying more meat, oil, and other goods than it did a year ago.

An interesting end note… Live Cattle is coming off of its highs in a more volatile way than normal. Since it’s high in December, Live Cattle is down -13.00% {Past performance is not necessarily indicative of future results}, and has experienced 3 limit down moves since the start of the year, (4 since December). Imagine what that percentage could be without limit moves?

While trend followers enjoyed the move up in 2014, and have been slowly recognizing this move down… this market is really the purview of Specialty Traders and Ag Traders. Download our complimentary Ag Traders Whitepaper and Specialty Traders Whitepaper, to learn more about how these traders use their experience in the field (literally, in a field with boots on) to ascertain what all the different data points mean for specific markets.