Shootin' the Bull about getting full

Cattle & Beef - Close up shot of brown and white cow

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift


Live Cattle:

Futures traders were quick to relinquish their buying today.  I think that when you delve inside the business, you'll find that importers are no longer chasing the bid for imported inventory.  It is possible they have caught up with forward needs to a point in which letting some time pass may be of benefit.  Grilling season will be touted heavily, but I'm not sure that it will be the saving grace as there will be ample cattle on feed out to July, and still getting bigger.  Were the April placements to shore up some of the loss from March's time frame, I think it will be difficult to find the hole in August.  Note a very similar aspect took place in January, where the snow storm pushed a large number from January into February. 


Just about everything was against the cattle feeder today. Higher feeder cattle costs, lower fat cattle prices, higher grains and energy prices are all working against the cattle feeder today.  While there have been greater losses per head noted, and potentially even a longer spell of week after week of losses that started back in October of '23, that is 6 months of not only consecutive losses, but over $180.00 per head loss or more, every single week.   Traders filled the gap with seeming ease today and Friday's rally was very sparse in attracting new interest into the market. I expect significant volatility with as much potential to test the bottom of the triangle as the top.  

Feeder Cattle:

Futures traders are becoming somewhat repetitive in their trading of feeder cattle.  The triangle continues to form.  Traders didn't fill the gap in feeder cattle.  Whether you think cattle are too cheap or too expensive doesn't matter.  What matters is where you will be marketing your inventory, regardless of what the price is, or will be when you physically market the inventory. At the moment, futures have rallied over $16.00.  Not enough?  The current September contract is $17.00 above the index and that is still $6.10 above the all time high of the index.  Still not enough?  How about a fence options hedge that would produce a minimum sale at the long put strike minus premium, but yet produce leeway up to $270.00, were prices to continue higher.  At the $270.00, the index would have to gain $26.75 from today's reading, and be $15.90 from the all time high of the index.  How about now, is that enough?  These questions are intended to make you think about your marketing.  

I expect traders to attempt to fill the gap.  It may take a week or two to do such.  With the triangle contracting, I would expect more volatility, this may help more producers position themselves the way they want to be, instead of the recent straight up, and straight down market action.  Outside market influence is watched carefully as consumers continue to deal with inflation, with a lot of them unable to deal with.  Nonetheless, note the Fed is continuing to pull money from the system and government funneling it in.  


While particularly novice to say, but the hog market seems a little rigged from just watching the antic's of exceptional volatility and price expanse, with very little transacting in the hog market.  Again, I know that is a novice observation, and one that begs of providing excuses.  However, a lot smarter analyst's than I have believed there was no need for divergence of basis.  Still, it continues and with less than 6 weeks to expiration, it leaves a very wide basis to be converged in a very short period of time. 


Corn and beans held their own while wheat advanced.  Wheat is worried about some dryness.  I expect the firmness in corn and beans to be somewhat related to South America, but with planters rolling strong this week, I would expect nearly 30% to have been planted by Monday's crop progress report. The match is between short funds and stored farmers.  The commodity funds are noted as predominantly short the market.  The farmer is sitting on one year, if not two years of unpriced inventory.  Conversations have leaned towards the need for the famer to sell, that end up being no need for them to sell.  Potentially, another unintended consequence of massive subsidies provided during the years of Covid payouts. Regardless, the battle lines are believed drawn.  Does the farmer hold out and keep grain stored, or does the futures traders win if the farmer turns grain into cash? 


Energy is believed to have topped.  Volatile price action the past several days leads me to believe energy has topped.  The continual build of carry in the diesel fuel adds credibility to the analysis.  I expect energy prices to move sharply lower in the coming weeks. 


Due to the first quarter bout of inflation, and some aspects of it maybe coming to a head early in the second, it leads me to anticipate the bonds rallying.  Once started, I expect a 10 to 14 point move higher.  

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. 


On the date of publication, Chris Swift did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.