Comments from the cow side on the trade war...

Discussion in 'Commodity Futures' started by Overnight, May 13, 2019.

  1. Overnight


    A general blurb this week about flashes and the interplay between grains and beef...


    Several years ago, complaints were lodged with the CME regarding unfair access granted to some traders for order flow. Traders in many remote locations complained their bandwidth would not allow their orders to hit the exchange server with the speed of other orders placed from higher bandwidth or closer proximity to the CME trade platform. It is a impossibility to assure all trader’s orders the same timing to the server and the issue died as people realized this basic fact.

    The end of the bandwidth controversy did not end the practice of flash trading or opportunist trading on market moving information. Many automated programs are linked to market time sensitive news releases in an effort to beat the crowd to the market and capitalize on a front running position. There is nothing illegal occurring, only algorithms designed to automate the process of reading a news release and turning the results into an instantaneous order on the exchanges.

    The best example is the release of USDA grain stocks reports at 11 am while grain futures are trading. It is not unusual to find futures up or down the limit following the report and sometimes both in the remaining time before the close. Market sensitive information is parsed quickly and frequently inaccurately. Traders might key off one matrix like crop yields or stock carryovers. It is not unusual for other data within the report to conflict with the single targeted data. Therefore, flash trades are sometimes wrong, and traders are locked into a large losing position.

    The Chinese trade wars have provided plentiful ammunition for flash trades. Regular news releases by both sides can be parsed for market moving relevance triggering market orders up on down on the exchanges. In a world, where as much of the negotiations occur through the media as behind closed doors, flash trades jump in and out of the CME ag contracts at a moment’s whim. The probability of success for this type trading is far from reliable. Head fakes and posturing in the media often drive trade positions and those positions find little in the way of fundamental soundness.

    One well known flash trading firm designed positions to include both live cattle and feeder contracts in equal size [number of contracts]. They had failed to differentiate the daily volumes in each or the application of differentiated components of the contract. For example, trade bearish trade news from China might cause corn futures to decline because of lost exports but crashing corn would be bullish for feeder cattle contracts. Send market orders for large volumes of buy contracts into the feeder cattle contracts will be certain to jump the price by dollars due to the poor liquidity of a contracts containing a book of 1s and 2s.

    There are certainly times when newly released information can translate into positions on the Board that can reap handsome rewards, but frequently human judgment is required for the careful design of the computerized trading protocols. Each ill-conceived flash trade presents an opportunity for those in the industry to act with a contrarian view taking the other side.
    #31     Nov 21, 2019
  2. Overnight


    And that is an important point. There was someone in one of the threads on the forum who typed that he loved flash crashes, because at the end of it the market quickly recovers, so he would contra the flash move. We've certainly seen that over and over in the equities. Food for thought. Especially if you like corn-on-the-cob.
    #32     Nov 21, 2019
  3. Overnight


    Latest blurb, at end-of-year...

    "...Corn prices were weak to open the week. The story in the grains was the large price increases in wheat this past week. Trade news and short wheat acres are spurring the rise. The corn basis is moving higher at 60 over the March board in Guymon, Oklahoma. Corn is now pricing into ration at $8.00 cwt. in the Oklahoma Panhandle.

    Cotton was a crop chosen by many farmers on the southern plains last year. The trades wars caused prices to fall and most cotton farmers had a bad experience. With the Phase I of the Chinese trade agreement in place, many farmers will switch back to corn. Corn production areas are likely to increase this coming year and current estimates of an additional 5 million acres will be closely tracks as we move to planting season.


    President Trump announced the signing of the Phase I trade agreement will occur January 15 with Vice Premier Liu He traveling to the U.S. for the ceremony. The Chinese already have a large book of American pork into 2020. Tariffs will be reduced from 12% to 9%. American pork remains a better buy than pork from the EU. Lean hog futures recently trading in the 50s are forecast to be in the 90s by summer..."

    Interesting ideas on hogs?
    #33     Dec 31, 2019
  4. easymon1


    #34     Jan 3, 2020
  5. easymon1


    he 2020 0113 d.png he 2020 0103 d.png
    #35     Jan 13, 2020
  6. Overnight


    Latest blurb, which mention piggies, hehe.


    The scene is set for the year – right? This month will deliver an annual cattle inventory that could evidence the end of the growth of the nation’s cattle herd during this cycle. This month also will memorialize the signing of the long-awaited Phase I trade agreement with China. The North American trade agreement has passed Congress and will soon be signed, and the Japanese bi-lateral trade agreement is signed. This all comes at a time when the economy is good, full employment in place and Americans are using higher wages to enjoy improved life-style changes.

    Any year-one economics student would take this set of facts and forecast a banner year for beef producers.

    Unfortunately, things are not always that simple. High expectations often set the bar too high and can only lead to disappointment. Speculators in the lean hog futures have learned the hard way and each wave of price optimism has been met with a wave of disappointment. The heavy premiums built into the deferred months have failed to deliver and hog prices have moved sideways instead of skyrocketing as expected with 25% of the world supply of pigs gone from disease.

    Any trip to the local supermarket will reveal new space allocated to plant-based proteins. While it is doubtful the introduction of these new products will covert millions of people to a vegetarian diet, it is certain they will cut into meat’s center of the plate marketshare. It will provide a fourth choice – beef, chicken, pork or ???. Humans have thousands of years of history as carnivores and meat has been a source for important nutritional value that will not be replaced quickly with plant-based alternatives that have no history. Processed foods like the alternative meats do have a history and it is a bad one in the field of nutrition.

    Alternative meats are not the only danger sign. Carcass weights are moving well above last year and accompanied by more cattle, this means more beef. This does not translate into a crash in the cattle markets, but it is a supply factor that will be balanced with demand for beef. Under capacity in the processing arena also gives packers leverage for managing prices. They won’t control the market but as gatekeeper they will enjoy the benefit of not having extra capacity competing for supplies. Fires and drought have forced liquidation of the Aussie herds and pressured prices. This will spill over to all global markets.

    Predicting future prices is always tricky business. The dynamic nature of all the inputs call for continuing recalibration. Each time point has its own measurements and at any given point in time, the forecasts of yesterday are gone and irrelevant. No one of us has all the facts. We each have only parts of information and data and different people have different parts and may weigh the facts differently.
    #36     Jan 14, 2020
  7. Overnight


    Input on the "signing"...


    President Trump and Vice Premier Liu He signed the Phase I trade agreement, but don't expect any market prices to jump because of the announcement. The Chinese are already active purchasing pork, chicken and even beef, but the increases announced in Wednesday press release were far less than promised. The Chinese promised to purchase an additional $12 billion of farm products in 2020 and $19 billion in 2021 assumed to be over baseline 2017. This was far less than President Trump announced of $50 billion per year. There are also technical problems to solve such as hormones, traceback, and raptopamine use. The biggest bluff or fluff in the deal is the statement the Chinese will STRIVE to purchase an additional $5 billion of ag products each year --- which means nothing.
    #37     Jan 16, 2020
  8. Overnight


    The weekly blurb fresh off the press...


    “The Phase-One Agreement with China will be a game changer for the U.S. beef industry," said NCBA President Jennifer Houston, who joined President Trump at the White House for the announcement event. President Trump and Vice Premier Liu He signed the Phase I trade agreement this past week outlining a plan to purchase an additional $12 billion of farm products in 2020 and $19 billion in 2021 over a baseline year of 2017. They added some fluff about striving for higher numbers that got a lot of attention in the headlines but mean nothing.

    Missing from the agreement was a list of the targeted commodities or the volumes of each commodity. Vice Premium reminded us during the ceremony that the purchases will be based on market demand in China. It is no secret that China is short protein and will need to make large purchases of many ag products from around the world. It also is a recognized fact that China will make public announcements designed to move the markets then make purchases of commodities on the other side of the market. China won't be tipping their hand of what they will buy or when and they will be playing off the U.S. against other ag suppliers like Australia, Brazil and Argentina.

    There also was no mention of the current tariffs on our beef [47%]and pork [68%]. Do those tariffs remain in place making our beef and pork more expensive? Pork will be the front line item for purchase but the Chinese are already purchasing our pork in large quantities and pork exports to China are double last year and getting stronger by the month. This demand driven occurrence would have happened with or without a trade agreement. Smithfield, our largest pork company, is owned by a Chinese company.

    Technical barriers remain for our beef exports. The Chinese require traceback for all cattle to the breeder and we have no ID system. The presence of hormones and antibiotics are always under scrutiny on beef moving into the China mainland as are tests for raptopamine residue in the meat. Animals over 30 months of age are not allowed currently. These regulatory hurtles need to be recast into commercially workable rules.

    Finally, whether or not this will be a game changer for beef producers is forecast in the marketplace. A quick look at the summer futures shows expectations of prices $7 lower than the current price -- hardly a windfall. Even prices into next year show little optimism for prices with cattle supplies that are basically expected to be flat in the coming year. One can make a plausible argument that global meat demand should boost prices for all red meat but the proof is always in the pudding. "
    #38     Jan 20, 2020
  9. easymon1



    Grilled Bacon Burgers with Caramelized Onions and Blue Cheese (edit: Or No Cheese at All, lol)

    For the perfect balance of bacon flavor and juicy texture, we processed raw bacon in the food processor and then cooked it briefly in a skillet. The parcooked pieces incorporated easily into the ground beef and dispersed bacon flavor more evenly throughout while the burgers stayed moist and juicy. Instead of tossing the leftover bacon fat we used it to sauté some onions, which provided salty balance to their sweet flavor. To turn these burgers into a savory showstopper, we topped them with rich and creamy crumbled blue cheese.

    8 slices bacon

    1 large onion, halved and sliced thin

    1/4 teaspoon table salt

    1-1/2 pounds 85 percent lean ground beef

    1/4 teaspoon pepper

    4 ounces blue cheese, crumbled and chilled (1 cup) (optional)

    4 hamburger buns, toasted if desired


    Process bacon in food processor to smooth paste, about 1 minute, scraping down sides of bowl as needed. Cook bacon in 12-inch nonstick skillet over medium heat, breaking up pieces with wooden spoon, until lightly browned in spots but still pink (do not cook until crisp), about 5 minutes. Drain bacon in fine-mesh strainer set over bowl. Transfer bacon to paper towel-lined plate and let cool completely. Reserve bacon fat.

    Add 2 tablespoons reserved fat to now-empty skillet and heat over medium heat until shimmering. Add onion and salt and cook until well browned, about 20 minutes. Transfer to bowl and set aside.

    Break ground beef into small pieces and spread into even layer on rimmed baking sheet. Sprinkle with bacon and gently toss to combine using 2 forks. Divide beef mixture into 4 equal portions, then gently shape each portion into 3/4-inch-thick patty. Using your fingertips, press center of each patty down until about 1/2 inch thick, creating slight divot.

    For a charcoal grill: Open bottom vent completely. Light large chimney starter filled with charcoal briquettes (6 quarts). When top coals are partially covered with ash, pour evenly over grill. Set cooking grate in place, cover, and open lid vent completely. Heat grill until hot, about 5 minutes.

    For a gas grill: Turn all burners to high, cover, and heat grill until hot, about 15 minutes. Leave all burners on high.

    Clean and oil cooking grate. Season patties with pepper. Place patties on grill, divot side up, and cook until well browned on first side, 2 to 4 minutes. Flip patties, top with blue cheese, if using, and continue to cook until well browned on second side and meat registers 120 to 125 degrees (for medium-rare) or 130 to 135 degrees (for medium), 3 to 5 minutes. Transfer burgers to platter and let rest for 5 minutes. Serve burgers on buns, topped with onions.
    Protein 48.6 g
    Last edited: Jan 20, 2020
    #39     Jan 20, 2020
  10. Overnight


    Well, sure, maybe summer LE futures will flip to contango if you stop promoting a delicious burger recipe tainted with blue cheese? OMG barf! American or cheddar please.

    Crap like blue and brie belong on crackers with wine, not on a tasty juicy burger. IMHO. lol
    #40     Jan 20, 2020
    easymon1 likes this.