“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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5/17/2024

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Live Cattle:

In my opinion, a little better price for producers this week, but seemingly with the price of feeders, still believed way too high, the cattle feeder isn't getting any breaks. Seemingly, the agenda is taking a turn.  As fewer cattle are placed, in an attempt to keep from running out of beef, or running off the consumer, rationing is believed going to take another step forward.  Packers are expected to do everything possible to limit losses and grow profits.  Manipulating the slaughter pace has kept beef prices high to the consumer and cattle prices high to all sectors of cattle production.  Where margin appears worse is in cattle feeding.  If not privy to proceeds from beef sales, or are intertwined within the formula, all traditional means and ways of feeding cattle can't seem to turn red ink into black.  Personally, I think feeder cattle prices are too high, or stated differently, the spread between starting feeder and finished fat is too wide.  In order to help offset some this starting void is to continue to grow the cattle bigger in hopes of increased weight will make up some of the price difference if not able to achieve a high enough price on the sale of fats. Nonetheless, traders are keeping prices within the range of the triangle.  It has been expected to traverse the triangle multiple times as the industry works through the completion of liquidation and start of expansion. With the current move moving back towards the top of the triangle, I believe it necessary to begin laying off risk.  While there are little to no premiums to lay off into in the fat market, the feeder cattle market has my undivided attention, where premiums do reside.  Recall that what you are attempting to achieve is to improve your marketing price.  The feeder cattle futures remain premium to the index and as of Friday's close, minimum sale floors can be produced above the current historical high of the index.  So, you are able to market inventory in the future at higher levels than have ever been traded in the physical market, via the CME index.  The next step will be your ability to live with the consequences of your decision.  The consequences are inherent. The question is whether you wish to attempt to manage the consequences, or accept whatever you are given at the time.  I have no idea what the consequences will be of inactivity.  I have an exact idea of what the consequences will be when proactive. The volatility and price expanse are not expected to slow anytime soon with fewer cattle coming and to what limits we can push beef prices before a noticeable shift in consumer preference.  I think while prices are rising, and the agenda continuing to produce more beef with fewer cattle, producers should be using the premium futures traders are offering, and be sure to tell them thank you, as no cattle feeder has been willing to pay you what the futures trader will. 

Grains are expected to move lower.  The rains, planting delays, and replant in some areas, is gaining no ground with traders.  Seemingly everyone has seen the same weather maps and models, and grains continue to soften.  I think there very little aspect the crop won't be planted and every kernel of corn or soybean seed that is not drowned has had the best start to the year in the past 3.  Dilution of fertilizers was a subject matter touched on this week. While if not side dressed, it may cause some lower yields.  However, if side dressed, the yields could be stupendous. Some I spoke with this week were under the impression the farmer would do what is right to achieve the best yields.  Energies were lower at the start of the week, but on Wednesday, they reversed and held gains into Friday's close.  I think energy is in a bear market with expectations of lower trading.  Bonds were higher by mid-week, but sold off some by Friday's close.  I expect bonds to continue higher as expectations of a rate cut in September, and some shifts in this week's economic data, should be friendly towards the bonds.  The grilling season is upon us with boxes back over $313.00 as of mid-day Friday.  They have been higher, and in few months, exceptionally higher due to a few unforeseen circumstances.  Seemingly though, they don't stay there for very long as beef demand simply dries up.  The balancing act is expected to continue with tremendous volatility and price expanse.  The goal, and agenda to accomplish, appear well in place now to ration cattle, and therefore beef, at a level that maintains consumer demand without running out of cattle. 

​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.