"Shootin' the Bull" about changes
“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
2/6/2025
Live Cattle:
A blind hog finds an acorn every now and then. The sun doesn't shine on the same dog's *ss every day, and once the music stops, the game of musical chairs is over. A few cattle feeders own historically priced inventory for which the future is now consistently discounting. Today, although seemingly strained by more bird flu, I think the reason for is the knowledge of increased inventory to be made available to the markets in the coming weeks. As well, with the current administration cutting spending and government jobs, the shift is very noticeable from the previous administration. Wheat pastures began to become available and redirected some percentage that was headed to on feed the previous fall. Those cattle, along with normal placements on wheat will be available towards the end of February and into the first of April. With new crop wheat above $6.00, there may be more incentive to pull them off just before FHS takes place in the wheat. With the border open in the south, and a great need to move them north, I expect this flow of inventory to return to normal sooner than later. With expectations of cash markets softening, it will be a real test to see how gamey futures traders will be, or packers to buy the significant discount.
Feeder Cattle:
There are 4 clear years in which August feeder cattle topped prior to the end of March, and never set another new high. Those are '12, '13, '20, & '22. As the Moore Research seasonality shows that cattle tend to top the second week of February, and decline into the first week of June, we could be seeing the highs for the year. In all of those 4 years, each made a new contract low before expiration. I think a portion of the down move is cattlemen simply spent a lot of money and may not have as much money any more until they sell something. If not having been astute in managing inherent risks of potential lower prices, significant losses will be expected. With the index moving down slowly, and the futures market rapidly, the tiger trap got a whole lot deeper today. If just now starting to be concerned of price movement lower, know that you are in a very poor basis position with risk of loss believed equal to both sides. As in, if you sell March futures at the over $13.00 discount, and the index declines $7.50 and the index rises $7.50, you have lost $13.00 total. If starting to hedge here, the $13.00 discount of futures will increase by the premium you pay for a put option. Hence, most everything done at this point will produce a significantly lower price than at present.
Class III Milk:
Milk was mixed, but seemingly not impacted by the new strain of bird flu. Pasteurization kills the bird flu in milk. I expect milk to continue to trade higher as current milk production levels and demand have the price inverted, with no expectations of increasing the dairy herd.
Corn:
Corn and beans shook off a lot of selling today to end up plus on the day. Wheat was the big winner with crops in both China and Russia questionable. I anticipate corn and beans to trade higher.
Energy:
Energy is back to a thorn in my side. Not so much that it isn't going up, but the reason it is not going up leads me to anticipate a weakening US economy. Although the actual layoffs & defunded government groups, and expulsion of illegal immigrants is slow, the consistency of is expected to be seen in economic data. The government has been a support to great deal of those that may not have necessarily been privy to. Now, that is reversing. So, I can see where I can be wrong on energy and I do not think it will be due to increased supplies, but more a lack of demand.
Bonds:
When discussing inflation, nothing is more inflated than US stocks. Gold, cocoa, coffee, and cattle fall in line with greatly inflated prices. If the current administration continues to make headway in inflation reduction, will these markets stand alone, or fall victim to the reduction? Bonds are pretty much flat with retail rates still very high and borrowing from the Fed window low, keeping margins very wide for banks.
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