“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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2/5/2024

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Live Cattle:

The impact from the winter storm is subsiding.  Total red meat production was 1.4% higher week over week and 3.3% year over year.  This does not reflect a shortage of meat, or any damage to production.  Distribution was impacted, but that is quickly being taking care of. So, cattle feeders are over a barrel.  The higher cash trade last week kept losses stable at over $300.00 per head.  Imagine how much that feeder steer cost when placed that $3.00 rally in the cash fats, simply kept the loss from growing.  At today's reflected price of feeder cattle in the future, those losses are anticipated to continue until the spread between starting feeder and finished fat narrows significantly.  Backgrounders are going to attempt to market feeders to a cattle feeder with absolutely no way to pencil in a profit with a substantial move higher in fat cattle prices, suggesting boxes higher, and a willingness of the consumer to pay more.  I think there are some backgrounders who think this is a foregone conclusion that cattle feeders will do such.  I think they may, but more likely, they won't, with convergence of basis taking place with the feeder cattle index between $230.00 and $240.00 between now and May.  Note the feeder cattle index is at a .618% retracement level of the initial decline.  I continue to anticipate more consolidation than price advance or decline, suggesting a triangle formation being built in both the index and futures.   

Feeder Cattle:

Here is where there is something to do, if you want to do something.  The premiums in the fats aren't worth fooling with unless you want to lock in a loss.  Cattle feeders hold no high cards in my opinion.  They are stuck for several more weeks, if not months, of losing money paid on high priced cattle from last year, and now already having to pay more, if they chose to hedge into the future. Not only that, the sequence of events needed to promote a higher price of both beef and cattle, appears to be not available at this time.  Friday's unemployment report is being scrutinized greatly, simply due to how poor of a job the guess was missed. Other reports reflected a slowing job front, not growing.  As well, Powell himself stated on 60 minutes that retail prices are most likely to stay elevated, while commodity prices come down.  This would go a long way in helping businesses regain lost margin, due to previous high commodity prices.  You have a lot on your plate managing not only the risk of adverse price fluctuation, but basis spreads that are believed very profitable, and the risks associated with the leverage of futures contracts.  So, get busy learning if you don't know what basis is, or how to use it to your benefit, as well as, doing something about it.  Again, it boils down to whether or not you can live with the consequences of your marketing decisions.  The trough appears full and you have been brought to, but you will have to drink for neither of us know how long the trough will stay full or where the next one will be.  Remember though, the fullest troughs are deep into the future, and can have a tendency to be leaky, the closer you get to.  

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Hogs:

Did hogs top?  I don't know either.  I have yet to understand the rally to begin with, and have yet to see any changes that would have led me to have anticipated the false breakout the first of January.  It will take nearly $3.00 lower to start getting confirmation the rally is complete.  There is a seasonal tendency that terminates next week, pushing the tendency to trade lower into the end of April.  Hogs have my undivided attention, simply due to aspects that could be very beneficial to producers and packers as well.  With most of my recommendations presented when above $90.00, June remains $6.00 above, with seemingly no justification for.  I will be quick with recommendations when believed appropriate.  

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Corn:

Corn trading has turned lethargic.  Farmers seemingly need to sell and the market is believed not going to offer them any premium to sell into.  End users have no reason to pay premium when spot month is the cheapest and no aspects of a reason for a rally.  This years near full carry in corn has already produced a trade of March under December.  When March expires, May will be anticipated to trade under that settle price, and so on to the July contract.  Beans are not much different.  At one time, the $12.00 handle was almost gone from this years price.  The July contract held at $12.00&1/4 to salvage the day.  Today's rally off the new lows is believed a lack of selling, not buying.  As grains and oilseeds are already in a bear market, I look for this to accelerate downward as the loss of energy price will impact bio-fuels and the need for farmer selling could make for an ugly ending.  

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Energy:

Energy is higher at the close, but not by much and especially after further US military strikes over the weekend.  I think between US oil production being up, and no threats against US oil production, as the distribution issues subside, supplies will increase and demand slow.  Nothing states this anymore than the reverting of back to a carry charge market.  Both  gasoline and crude oil are in the early process of creating carry.  Diesel fuel remains a ways from doing such, but can remain in an inverted carry and still move lower.  This might be a time to watch for a spread between diesel fuel and gasoline. The chart below between Gasoline and Diesel Fuel shows Diesel gaining on Gasoline. This may continue like this from an aspect of gasoline trading lower than diesel fuel.  Not to beat a dead horse, but seemingly prices are starting to move in directions believed when coming back from Chicago.  Note the near breaking of the up trend line in crude oil on the chart below.  I anticipate a sharp decline in energy prices.  

Bonds:

The miss of the unemployment guess was so great, everyone is talking about it, and the markets are still reacting to it.  Bonds are down sharply again today, with most markets lower as well.  I anticipate bond prices to move higher, but seemingly this event has yet to be played out.  Whether manipulation or poor calculations, the miss of this report is too flagrant to dispel. With the US dollar breaking out to the upside, energy reverting to a carry charge market, and grains in a bear market, there are few factors that bullish US commodities. 

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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.