“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​1/2/2024

Live Cattle:​

​The futures traders are believed set with a significant increase in open interest representing both sides digging in their heels.  Commercial short positions continue to market inventory at higher levels with the expectation of higher prices so they can benefit even more.  However were consumers to not be as bullish beef as cattlemen are cattle, having marketing along the way up will be expected to pay dividends. Commodity funds are believed on the long side, attempting to foresee endless beef demand and fewer cattle.  To most producers it doesn't matter who is short or long, but whether or not these prices can be sustained.  That will be determined by the consumer in the grocery store and restaurants.  With the current bout of inflation persisting, it will boil down to whether or not beef appreciates with the inflation or is it hampered by.  

The June of '24 contract posted an anomaly by producing a historical weekly high on the continuation charts.  While June of '25 may well do the same, the seasonal tendency is for fat cattle to top the first of January, potentially double top the second week of February and declines into the first of June. I have heard more than once that "this time will be different".  It seldom is and with as much knowledge of the situation, I remain skeptical that these prices can be sustained. 

Due to the seasonality of fats, and knowledge of price they are going on feed, along with rising input costs, I recommend you own the at the money put option in the month you will be marketing fats in.  This is a sales solicitation.      

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Feeder Cattle:​

Another round of rationing producers would be viewed between the $270.00 to $275.00 area futures.  Whether cattle feeders will bid that high is another question.  At the moment, backgrounders have been given a huge swap in basis to a negative one in which most fence options strikes will put you $10.00 to $13.00 above the current index reading. The Mexican border will open soon and if the winter vortex doesn't bring the misery the futures market expects, these price levels are believed lofty.  Other than all the things that can go wrong, as long as cattlemen keeping paying more for cattle, there shouldn't be many problems. So, root for your buyer to keep buying and you keep buying and the price will continue to go up.  You know what happens when the buying stops. 

I recommend laying off risk of spring marketing's with a fence options spread that consists of an at the money put and $10.00 out of the money call to fix a window of marketing opportunity.  This is a sales solicitation.  If you do not wish to pay margin calls, then just own the at the money put options and pay the premium.  I am not looking for a $5.00 to $10.00 move back and forth or just higher or lower.  When the fundamentals of the cattle and beef market change, most likely due to consumer actions, the liquidation and or further increase of positions will drive the market tens of dollars, not just dollars.   We have already seen an over $43.00 move higher in futures from the contract low with it not being uncommon for contract highs and lows to be exceeded more than once in a contracts life time.  Good, bad, or ugly, the capital requirements to produce a pound of beef are perceived as exceptional when considering alternative proteins and consumers willingness to pay an excessive amount more for beef. 

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​​Hogs:

​Hogs were mixed with the index down $.08 at $84.27.  I anticipate a downside target of the index to $75.00.  ​​

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Corn:  

Corn and beans firmed with wheat a little lower.  I keep hearing more clients call with concerns and expectations for drought this year.  Seemingly, with other drought years, it hasn't made a great deal of difference in yield.  Especially corn.  Beans may have been dinged a little in August of this year with the late drought, but seemingly not by much considering the carry out.  So, a couple of things to consider.  If there is a drought, corn and beans won't be the issue, grass pastures and ponds will be.  Therefore, consider that a drought could ruin a great deal of well laid plans to hold cattle after wheat pastures to summer graze.  ​​

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Energy:​​​​​​

​Energy was higher and has broken out to the upside.  Significant gains were made in all three today.  Gasoline led the way today, but crude and diesel were just fractions behind. China stimulating, and continual middle east conflict, is expected to keep oil prices firm.  Bonds and the US dollar have trended significantly since the first of October in what was believed a prelude to Trumps win.  I say that due to both of those markets accelerating once the win was confirmed.  Crude oil though merely stagnated into a wide trading range, but has since broke out to the upside.  This leads me to believe that Trumps goals of "drill baby drill" may not have the same impact as before.  One is that the US is already at a historical level of production and the demand today is believed significantly more than in his first administration.  Hence, it is unlikely to begin building stock piles again.  And if we did, I think it would be a sign of economic weakness over strength.  ​

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Bonds:

​Bonds, and note's were able to be plus on the day, but barely.  The spread between the Fed window and retail rates continues to widen, leaving a lot of borrower's scratching their heads as to why rates on operating notes are rising.  Regardless of why, they are.    ​​

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​​This is intended to be or is in the nature of a solicitation. 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 the 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.