Shootin' the Bull about inside trading days

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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3/6/2024

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Live Cattle:

Traders posted a second inside day for the April contract.  The April was down the most, but none were down by much.  There are continual issues on hand that are expected to keep fat cattle prices from soaring higher. The first is simply the rate of slaughter.  At this pace, it is intended to keep beef prices high and allow for increased carcass weights. One keeping consumer demand from jumping and the other to increase beef production.  Both to help mitigate the impact of a shrinking herd.  Another is the increase in imports and decrease in exports.  The impact of this is obvious.  The last is the most important in my analysis.  That being, the dairy/beef cross.  At first, I thought this would be of great help. After a great deal of interjection, I pulled back to the agreement that it would replace a percentage of what was going to be lost from heifer slaughter. Today, with little evidence of holding back heifers, the increase from the dairy/beef cross appears to be adding inventory to the mix, instead of only replacing a percentage.  Hence, why we have more cattle on feed this year than last, with expectations of that remaining well into the second quarter.  My stance at the moment is not so much the price moving higher or lower, but the worsening margins that all cattle feeders are experiencing.  Recently, with the move higher in boxes, some margins may have improved, but for the majority, they did not.  So, walking on egg shells to keep the price high enough to produce the minimal loss of feeding cattle doesn't appear as a very strong business model. Buying calves and feeder cattle and selling beef appears to be the business model where profit margin exists.  Integrating into one of these lines is difficult for most smaller producers.  Long way around the barn, but if the price of fat cattle don't go up, the price of feeder cattle don't go down, or feed costs don't move sharply lower, the cattle feeding sector is anticipated to continue to work on razor thin margins.  

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Feeder Cattle:

You, as a backgrounder or cow/calf operation already know this.  This should make the decision making process much simpler due to knowing the cattle feeder will have to move in some manner to bring margins back to feeding. To the cattle feeder, they literally have to have fat prices move higher to profit from. Of the two most likely scenarios to take place, cattle feeders either resist bids on feeders and drive them lower, or a few end meat sellers move to take further control of market share.  The latter would be anticipated to cause a major shift within the industry.   That shift may not look nearly as attractive in the future as it may today.  Recall that when the packing industry consolidated, it made for fewer bidders for fats and a tremendous amount of control shifted to the packer.  If some end meat sellers are going to attempt to drive some cattle feeders out of business, then cattle feeding will consolidate further, produce fewer bids and most likely cause a huge shift in control of who buys your calves and feeder cattle.  As has been written multiple times recently of the agricultural sector, there are going to be fewer producers producing more product. These comments are made with intentions of helping you make the most informed decision.  While not always correct, they are factors that are pertinent to the commodity.  I say this knowing the farmer had similarly accurate information to base marketing's on, but seemingly failed to take action.  As I continue to believe prices will consolidate, the premiums of the futures markets offers you marketing alternatives that may produce a price never available in the cash markets.  

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Hogs:

Hogs were lower today.  The outside reversal has some credibility to it now with further downside movement.  On the day of the reversal, it is possible the waves 1 and 2 were made within the day's trading range.  Hence, that would make the current decline the wave 3. I anticipate a 5 wave move lower to be the wave A or major wave 1 of an anticipated significant decline down to the lean hog index.   

I recommend selling June hogs with a buy stop to exit only at $103.20.  This is a sales solicitation. 

Corn:

Grains were mixed today with corn a tad higher, beans really mixed and wheat lower.  Wheat is in the news with expectations of China cancelling some previous wheat purchases, along with the low prices causing some wheat pastures to be grazed out.  I believe corn and beans to be forming a minor wave 4 correction with a minor wave 5 new contract low in both.  

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Energy:

Energy is sharply higher today.  I don't know how or why, but it is.  Although none exceeded a previous high, the only answer I have to the incredible rally today would be that humans were bearish and sold to the extent for which the computers recognized the low human volume and began buying.  The rally is believed more short covering than buying to be long.  I say that due to the speed in which the price rose, leading me to believe fear was more of an issue than methodical positioning.  I wish I know more, but theory is all I have and that theory is that computers have a way, or are programed in a manner that allows them to calculate the number of contracts, potential number of human participants and when found to be one sided with human participation, then goes to work doing the opposite in an attempt to create the most price fluctuation with the least amount of energy expended. Again, theory with no way to prove that I know of. 

Bonds:

Bonds continue higher again today. I expect the stagflation to morph into recession.  

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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. 

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