Shootin' the Bull about lost premium

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

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift


Live Cattle:

I can't think of much to add to the current fiasco.  Cattle feeders, or cattlemen, continue to bid high and often in the video sales with nowhere to lay off risk that isn't detrimental.  This appears as a bad situation for which only time and a great deal of consumer demand will resolve.  Both of which are not necessarily in the cattle feeders favor.  In time, I predict more beef production with an expectation of being equal to or slightly greater than beef production over '23.  Consumer demand is believed to have peaked last week with expectations of a sharp contraction in spending.  I have attempted to make a point about the inflation being divided between those not privy to government subsidies or spending, and those who are.  Today, from the horse's mouth came:*DJ Powell: Government Spending Is Part of the Inflation Story.  If consumer spending has already begun to soften, what will happen when government spending softens?  In only 4 months we will either get more of the same, in larger doses, or a potential change to remove a great deal of government spending.  

Feeder Cattle:

Well, now what?  Basis has not only collapsed, it is going backwards.  A positive basis has not been seen in over a year, more likely two.  Now, it is gone and all those premiums backgrounders were privy to are gone.  For months on end, the futures traders offered premium, and now they are not.  This is a definitive clue that few are willing to assume your risk at a premium.  Now, they are still willing, but at a discount.  Everything bought today has no outlet at a higher price.  Since this does not appear to be impacting everyone the same, anticipate some very large gaps to occur between purchase and sales through the production time frame.  While not pleasurable to discuss, but having stated it before, it seems as if the industry is attempting to accomplish a goal.  One in which risk, to retail meat sellers and packers, is mitigated through a strong vertically integrated supply chain. Note the money being invested by the larger companies in an attempt to achieve this.  Seemingly, a great deal of cattle feeders have fallen in line and have become in some way part of a vertically integrated supply chain.  Those that remain outside of are anticipated to be brought within the fold, or driven out of business.  Tough to talk about, but necessary nonetheless.  The fewer cattle feeders, the fewer people bidding on them.  The more control over production the beef/dairy cross provides is expected to increase the production line of these cattle.  I think the tide has turned and the positive basis definitive proof.  While it may jockey back and forth between positive and negative, the aspect of is already here.  As we believe our analysis has helped to make more informed decisions, we always look forward to servicing your futures account.   


​Hogs are lower.  Basis has converged.  Traders are not scared to sell the large positive basis.  This should be telling you something about pork demand.  


Nothing new here.  Further downside movement is expected.  The flooded acres are so varied, it may take a few more weeks to get an idea of what has actually been taken out of production. The heat wave coming next week may start to show some stress on crops not as privy to the rains as some have been.  This may be enough to produce a wave 4 rally in both corn and beans.  

If you applied the options strategy on corn that was recommended before the break lower, I recommend covering the short call position were December corn to trade under $4.00.  That will relieve any upside strangle while still maintaining the downside potential to the short put strike price. This is a sales solicitation. 


​Energy is softer today.  Crude was higher, but both products lower.  I remain not bullish, but not gaining much ground on being bearish either.  I think with the break in box beef, it is suggesting the consumer may contract and I would expect gasoline to fall sharply if found to be the case. 


Bonds are firmer after Powell finished speaking.  I may be dead wrong, but I believe that is the first time a Fed chairman has stated government spending to be a part of the inflation.  We all know it is as we can see that forgiving someone's loans, or supplying a multitude of non tax paying illegal immigrants with everything under the sun they could need or want.  I expect bonds to continue to move higher.  Were the consumer to show signs of spending restraint, I would expect bonds to move sharply higher. Lumber set new contract lows today and it just seems as if the economy is not hitting on all 8 at the moment.  

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.