2/12/2025

Live Cattle:​

I am spooked.  I am spooked because I can't find a time in history for which so much inflation was caused by the excessive printing of money, stripping age old supply lines that have never been impacted by demand like this.  Supply shortages have been the mover of markets higher for most of my career.  Some demand time frames in history have produced buying sprees, but nothing like this one.  Last week, packers grew tired of losing money and are doing something about it.  They are going to make margin by cutting kills and shortening the supplies of beef. This will keep prices high to the consumer, further weakening consumer demand, while making cattle even fatter.  With this action in place, the next move will be to the cattle feeder, now owning the highest priced inventory in history.  I don't know what they will do, or what they can do at this point as the high prices have already been paid.  Futures traders are believed to have foreseen the unbridled extent of what someone will pay to own a cow, and made sure they never provided the opportunity to have them own them at an even higher price.  Hence the positive basis became a detriment to the producer over a leading indicator.  There remains a great deal to sort out going forward as the new administration cleans house of the old.   

​

​​Feeder Cattle:​

​With packers having made their move, the cattle feeder should be next. At present, it appears they do hold a little bit of leverage.  One, they can easily stop bidding higher, but if in need of inventory, simply turn to futures where discounts abound.  That leaves the backgrounder to move one way or the other.  With futures at steep discounts to cash, and most likely not hungry for grass cattle yet, softening bids may be their only hope at the moment.  This week is not shaping up to be the rally needed to converge basis.  Seemingly, cattle feeders are in no hurry to buy feeder cattle at lower prices and the funds are believed using rallies to exit, not declines to enter. Keep this in mind.  Where will the consumer get more money to pay higher prices for beef?  How much more in interest will producers have to pay with inflation still climbing?  I'm finding it difficult to find more money for either to impact prices in a positive manner.  This is a massive shortage of supply for which there is too much processing and production capacity for the amount of inventory outside vertical integration.  Therefore, like the packers are currently doing to make margin for themselves, others will have to do the same. Contraction can be painful and those with the deepest pockets will be able to survive the culling of production and processing capacity that is expected to come about. 

For cow/calf operations looking to hedge this year's, or next year's calf crop, consider putting pencil to paper first.  Take the premium quoted on an LRP policy for the calf weight and time frame you will be marketing in.  Then calculate the value of what the policy represents at marketing date and divide that into the premium to see what percentage of the value the policy is to your cattle.  If it is less than 5%, consider that when viewing previous declines in any year, as well as, what type of rally you would have to experience to overcome the premium paid.  This should help producers and agents come to a quicker decision on whether or not to protect something that is still unborn or only a few months old in marketing time frame. If you need help, contact me. 

​

​

​​Class III Milk:

​Milk was mixed today.  I expect milk to continue higher.  I recommend owning milk futures and December call options on milk futures.  This is a sales solicitation. 

 ​​​​​​​​​​​​​​​​​​​​​

Corn:  

​Corn overcame all obstacles the beans and wheat could not.  As above, I am a little spooked in grains as well.  If the inflation does begin to turn the economy into a recession or further stagflation, grains may suffer.  With two years of poor returns on row crops, this year's marketing's will be crucial.  I am not ready to act just yet, but might have to before I want to.   ​

​

​​Energy:​​​​​​

​Energy was higher, then turned sharply lower.  US/Russia negotiations today is believed a cause of the lower trade.  With two days higher this week and a big down day today, I am skeptical about energy moving higher.  In my opinion alone, I continue to believe that a strong economy would promote a higher energy price.  Unfortunately, it appears as the contraction of spending of the previous administration will be exceptionally painful to consumers.  If energy moves lower, I do not believe it will be due to increased production, but decrease in demand. ​​

​​​​​​​​

Bonds:​​

​Bonds, and notes, were sharply lower today because inflation just continues because supply lines have been stripped to such an extent that prices will remain high to quell demand, and allow time for increased production.  Some commodities are able to subside in price with the decrease of demand because supply chains were not impacted as greatly as others, or have large supply capabilities like oil and grains.  Nonetheless, I think a reckoning is upon us with multiple markets at very high levels, or worse, already at lower levels.  ​​​

​

​​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.