Shootin' the Bull about margins, or lack of

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​

3/20/2024

​

Live Cattle:

The loss of margin between feeder cattle and fats is fairly easy to calculate due to significant data from futures and cash markets.  It get's a little less easy when comparing calf/stocker prices to feeder cattle.  Mostly due to such a weight difference in the calf/stocker category.  Today though, Dr. Derrell Peel showed a chart on RFD-TV that shows the widening spread between the 500lb and 800lb steers.  It is now crystal clear how much margin is being lost between the sectors.  Prices for that 500lb steer has not only risen sharply, but well exceeded the price made in the 2014 time frame.  Backgrounders are urged to view the predicament some cattle feeders are in and look to avoid the same aspects they are in. That being, just keep on buying, whether there is margin or not. Recall, it is believed there is a play in motion to garner more market share of the beef market.  Hence to do such suggests they source cattle for which fewer hands will attempt to profit, potentially increasing the margins as proceeds from the sale of beef becomes the revenue stream.  With no margins in feeding cattle, and narrowing down the line, it suggest the only way to profit is have cattle continue to move higher in price.  Sideways or lower would simply continue the string of losses.  One of two ways out of this, those seeking greater market share obtain such, or the industry tries to play nice, and higher bids don't materialize.   

​

Feeder Cattle:

I get an ear full every time I bring up the dairy/beef cross.  The division is between those who object, believing it will replace the beef cow, those that embrace it, believing it will benefit their operation, and those that don't care, the consumer.  The consumer, or so few of, that could tell the difference between the two on a plate is a moot point. A recognition is that the US isn't really losing the consumption rate, but experiencing a dramatic shift in what they consume.  That being either a lesser priced cut, grind, or alternative protein. If there were anything to watch out for, I think it would be in the feed mix.   That being, corn moves higher for any reason, or no reason at all.  I have heard of a great deal of justification for paying so much for feeder cattle was due to the aspects of cheap grain.  Grain is not necessarily cheap, and at present, it is firming in price. I highly recommend you look both ways before crossing the street. 

Hogs:

Hogs were  lower.  The index was up $.28 at $82.82.  

​

Corn:

Corn was not lower again today.  Beans were higher and wheat pulled itself up by the boot straps by the close. I recommended on the mid day cattle comment to buy March of '25 soybean oil with a sell stop to exit only at $47.05.  This is a sales solicitation. I recommend buying July Chicago wheat with a sell stop to exit only at $5.40.  This is a sales solicitation.  Lastly, I recommended buying the December Chicago wheat and selling December corn with a mental stop to exit only at $.98.  The spread closed today at $1.22&3/4.  I expect the spread to widen back to the width seen at the end of January at around $1.69 spread.  The relationship isn't out of line, but I kind of favor wheat trading higher over corn.  

​

Energy:

Energies were lower with crude and gasoline down, but diesel fuel sharply lower.  So, the spread between gasoline and diesel fuel continues to move towards gasoline over diesel fuel. I think today's decline is minor correction.  It may not be complete, but with the significance of the breakout, I anticipate quite a bit higher before finding significant resistance. 

​

Bonds:

The Fed's decision today leads me to anticipate more stagflation with food and energy prices moving higher.  The consumer is believed at the verge of seeing a great deal of food price hikes.  Beef and pork will continue be priced higher, or the grocer/restaurant selling it will lose margin. Shell waste's no time raising retail pump price with the price action of futures.  It won't surprise me to see it start to fluctuate on the signs posting prices. There used to be a 3 to 4 week lag in most any price change as the station was selling product that was priced a month or two prior. Hence, they purchase a month's worth of fuel at X and continue with that price until the next purchase.  Not today.  It appears the retail stores are privy to the daily rise and are quick to adjust price.  Of one thing that has not changed.  When I see large declines on the futures, the retail pump is very slow to recognize this. If questioned, that is when they will tell you they are selling you last months gasoline price and the new price not available until all the gasoline at the old price is used.  Whether it actually works that way or not, it sure seems that way as I watch the price daily at the office and have to see it multiple times on the drive home. Nonetheless, the Fed said nothing different and therefore we should expect nothing different. Higher and longer lasting inflation appears to be the path 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. 

Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.