“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​10/22/2024

Live Cattle:​

Most futures are stuck in a well worn $3.00 range.  Closing at the top is of little significance as at the moment there is so little basis to contend with, there is seemingly no advantage either way.  Rationing is again taking place as with still 11.5 million head of cattle on feed, the industry is trying its best to quell consumer demand.  Of all the years the industry attempted to grow demand, it is now attempting to decrease it.  As in anything, the higher the price, the fewer that can afford it.  I can hear the cogs clicking and sprockets spinning in your head going, "but what about that resilient demand of the consumer?"  I can't throw up one argument to that.  I am unsure of the metric's between what I hear, see and am accustomed to, versus how government reports reflect the consumer spending habits.  As credit card debt soars, and inflation continuing to simmer above the 2% goal, the consumer is either super resilient or we maybe treading water over a deep pool.  Regardless, there is no premiums or discounts of futures that would made make or break anyone, but there are other input costs that are currently variable that I believe should be made fixed.  Mostly, corn and diesel fuel.  For corn, I recommend fixing your cost out to July by buying the July futures, or the $4.60 call options.  This is a sales solicitation.  Currently, cost of carry from December to July is $.03.  A quick quote from ADM is at $.06.  For the 7 months, the $.03 difference is $.21 you do not have to pay in storage.  So, it appears that if you are going to store corn, the board is the cheapest place to.  While this will do nothing in the form of creating a direction for corn price, or does it fix basis.  What it will do though is have you own corn in July for $.02 more than today.  If one could fix a suitable basis contract, you will have fixed your feed costs out to July.  I highly recommend you put this on the front burner for this reason.  Farmers are believed backwards on sales and did not make timely sales at higher prices.  Since you have already been prompted to hedge your inventory with an at the money put, you will still need to feed them.  I do not want to see clients watch corn go higher in disbelief.  I want you to do something about it while prices and carry are believed advantageous.    

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Feeder Cattle:​

The bulls have the slight advantage with the positive basis.  Without a fundamental factor in view, that would cause a cattle feeder to show reserve in bidding, normal convergence of basis will take place.  With the index simply trading in cents, and at a 50% retracement level of a historical high, one has to consider the risk to reward.  Scott Shellady used the example of trying to pick up nickels in front of a steam roller.  I think that is good analogy when margins are difficult to pencil in. Nonetheless, cattle feeders are in the spot light as they are the only ones that want feeder cattle.  As the rationing continues to the consumer, and this weeks on feed report to continue to show above 11 million head and closer to 11.5 million head, it sure seems like the price of cattle and beef are at levels when beef and cattle are short and that doesn't seem to be the case.  The agenda continues to produce equal beef production to last year.  It took the first 6 months to achieve, but there seems to be no letting up now.  Two factors of concern are the drought and aspects to have to liquidate more cattle before years end, and if were to drag into the spring, fewer heifers would be expected held back.  Therefore, a continuation of the drought could make 1st quarter beef production higher than last year's first quarter.  What will make feeder cattle move higher?  Money and consumer demand.  Both appear adequate at the moment with more or less of either expected to push cattle in a price direction.  ​

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​Hogs:

​Hogs were mixed with the index up $.27 at $84.23.  

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Corn:  

I continue to like owning wheat. I recommend buying KC, Chicago or Minneapolis wheat.  This is a sales solicitation.  At the moment, I don't have a place to put a stop, but at today's low maybe as good of place as any.  Corn is the most interesting with the carry so low out to July.  If corn farmers needed cash today, then sell off the combine and re-own on the board and you will be paying $.03 less in storage than at your elevator. If you wanted to own it with limited risk, then buy the $4.60 July calls with the $.21 you saved by not paying storage at the elevator.  To some extent, if this were found to be favorable, then more of it may be done by farmers, pushing front end lower and back end higher.  While I discovered this for cattle feeders, it appears to have some benefits to farmers who need to market corn now, but would like to have some retention. None of this idea will represent a price direction or basis spread.  It's sole intention is price control for cattle feeders were prices to move higher.  Were soybeans to make new contract lows, I would expect this to be a 5th wave.  When terminated, it could have beans near yearly support levels of between $9.50 and $8.50.       ​​

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Energy:

​Energy started is higher again today.  I expect energy to continue higher.  The carry in diesel is almost non-existent.  It has flopped from a fully inverted carry, back to carry, and now attempting to go inverted again, like crude.  As well, diesel fuel was so weak, it traded under the price of gasoline back in August of this year.  Today, that spread is beginning to trade heating oil higher over gasoline.  Whether it stays that way or not, I believe the price of diesel fuel at $2.24, which hasn't been this low since 2021, will be beneficial to lock in. If you think a Trump administration will drop that significantly, you may be correct, but it would not be for months, and maybe well past spring planting.  As well, prices could soar before a new administration is sworn in, and at the moment, the US is believed in a weak energy stance.  Never forget that the reason the government excludes food and energy prices is due to their high rate of volatility.  I don't want to see you in one of those time frames of a high rate of volatility and nothing booked.  I recommend you book some fuel needs, forward contract spring planting needs, or buy call options in the crude oil market.  This is a sales solicitation.  

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Bonds:

Bonds made a new low in this decline.  This has been a massive sell off and by the significance of the move, caught a great deal by surprise.  The enormous jump in the US dollar most likely created some havoc in import/export sales that were already slated, but not paid for yet. Rates have jumped and if the stimulation was intended to be a spurt of inflation to keep from a melt down, it may have succeeded more than wished. Nonetheless, inflation appears to be fueled by excessive government spending and a Fed content with the inflation status.   ​​​​​​​​​

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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.