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Basis and massive down pressure means futures market has moved from a risk-management tool to a cause of risk.

Chris Swift 1, Blogger

July 19, 2016

2 Min Read

 

Live cattle showed a weaker start again today, and weakness continues to prevail more than strength.

With the oddity of the wide positive basis seemingly becoming the norm, the need or use of futures is diminishing. Whereas the futures market used to be a place where risk could be mitigated, the past several months has seen it as a detriment.

The drop in open interest and lower volume appears to be confirming this. I don't anticipate this to last much longer, but until it does, I don't see much to do.

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Feeder cattle are softer following suit with everything else, it appears. There is nothing I can see that has changed the environment of cattle. Traders are perceived jockeying for position to this week's reports. However, with the low volumes and little change in open interest, there doesn't appear to be too much jockeying going on.

The consolidation of prices is perceived increasing risk of an explosive move out of the range. When you view the feeder cattle chart you will see it can't get much tighter than it is. With the significance of the reports coming out Friday, it just makes the situation all the more complex. I see nothing to do at this juncture. 

Corn remains in limbo with no new contract low and no negating of the $3.82 level. I see nothing to do at this time in corn. Beans are taking a hit this morning from a revised weather forecast. I continue to like beans and am looking for an area to be a buyer.

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An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. Past performance is not necessarily indicative of future results.

About the Author(s)

Chris Swift 1

Blogger

Chris Swift is a broker and advisor in Nashville, Tennessee, offering technical and mechanical analysis of the commodity market to help people improve their risk management.

To contact Swift about hedging or to subscribe to his daily market comments at:

shootinthebull.com/commodity-market-comments/

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