Shootin' the Bull about needing time

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

1/3/2024

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Live Cattle:

Time is needed to allow for further alignment of cattle production to beef production. Box beef prices are plummeting.  Down again today at $278.03.  This is still $23.00 higher than previous all time high.   Beef production was thought to plummet in 2023, due to expansion having taken cattle supplies out of the market.  Many in the industry saw this coming and began taking action.  Some of those actions were keeping cattle on feed longer, as well as increasing the dairy/beef cross.  Others began seeking new lines for beef importation.  Lastly, the consumer was left to consume what they wanted at all time historical prices for retail beef, eventually beginning to impact demand.  When cattle producers back tracked on expansion this fall, they unexpectedly pushed thousands of cattle on feed that may have been destine for further cattle production. Money does strange things to people and some just foresaw the four birds in their hands was enough to quell the thought of a 5th one.  Some always want everything, and sometimes end up with nothing.  Today, cattle feeders remain over a barrel.  It doesn't matter if it is a feedyard or individual, if risk was not managed, it is bad.  Loss per head is anticipated to move beyond $350.00.  Again, even if the price of fats remained stable for the next 2 months, the price paid for the steer in the past kept moving higher in price.  Therefore, losses will continue to mount.  Cattle feeders need to place cattle in January and February for summer beef consumption.  This is coming at the same time losses are topping out on slaughter ready inventory. I think this factor alone will keep feeder cattle prices from soaring.  I don't doubt they will or can move higher, but every tic higher is losing money, not making it.  The spreads between feeders and fats remain too wide for profitability. At a spread of over $54.00 between March feeders and August fats, is a great deal of money to have to make to just break even.  I continue to believe the divide between plenty of inventory on hand out to April, and less past May, will continue to see the price spreads narrow between February/April against June/August.  

Feeder Cattle:

Basis spreads are believed going to be your best marketing and procurement friend you have.  I believe that the price of feeder cattle will trade within a very wide, contracting triangle for months to come.  Get your pencils sharp.  Learn all there is about basis, how it works with expiration of the futures contract and know how closely the markets you deal in, relate to the feeder cattle index.  This will help you be able to gauge where you buy or sell.  Both cattle feeders and backgrounders are going to be tested this year, as both are anticipated to see price fluctuation for and against their positions.  Basis at present is believed skewed by lack of volume of trading in the cash markets.  In two weeks, this should return to normal and reduce the day to day fluctuation of the index.  For reference, I am going to use the May contract, due to time availability.  The current triangle is drawn from a down Gann fan and an up Gann fan.  At present, it appears the price is just about in the middle.  At present, I think it as likely to push $5.00 higher as it is $5.00 lower.  For now, I am anticipating a trade lower in feeder cattle that will form a minor wave B correction.  Then, I will look for a C wave rally.  Potentially, were the minor B to move $5.00 lower, I will be looking to use that to procure more spring cattle, out to May.  On rallies, were the top end to be approached, I will be looking to market some inventory.  The basis spread may potentially be the only profit margin there is for backgrounders marketing cattle this year.  The index, via what cattle feeders are going to pay, is not anticipated to perform as well as futures.  Few analyst's predict a robust year for the consumer in '24.  So, learn basis, and call me if you need help. 

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Hogs:

June hogs stagnated today.  I anticipate hogs to trade sharply lower to meet the index, currently at $65.05, and expected to decline to $47.00.  

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Corn:

Corn and beans held their own today, but barely.  Beans made further new lows, but was able to close plus on the day.  I don't expect that to last through Thursday's close.  There is a tremendous amount of unpriced grain and oil seeds.  Farmers are anticipated to increase selling with the lower prices.  As well, with the wide spread rains across South America, increasing the potential for  record crop, I think it only a matter of time before China begins cancelling bean contracts with a 13 handle for SA beans with an 11 or 10 handle. Downside target for March beans is $10.00.  March corn $4.50.  December of '23 corn expired at $4.56&3/4.   

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Energy:

Energy was exceptionally volatile again today with another over $3.00 range.  I remain somewhat bearish, but won't be surprised by anything.  

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Bonds:

Bonds are believed to have completed a minor wave 4 correction.  Upside target for minor wave 5 is 130'00 March bonds.  Whether recession or deflation, money is being sucked out of the system, not being put in.  Therefore, stimulation is most likely needed, and lower rates is a minor stimulant. If combined with a round of money printing, then inflation will rear its head again.  I don't expect that until prices come down quite a bit more.  I think the consumer and administration will turn a deaf ear to business and cater to the consumer in the election year.  I don't think it will make much difference.  I can't see a way out of the current agenda, or do I know enough of what it is to do something about it.  I am reading again "The Art of War" by Sun Tzu.  Diluting societies through infiltration is one of the aspects used to conquer.  Overwhelm the supplies of the nation to weaken them to a point in which an army can then move to control the subjects easier. As medical and emergency resources are stretched further, the printing of more money will be necessary, just to keep up with what is still available.  We, as a nation, are nearing the limits of ability to pay the interest on the debt we owe.  Topping over 34 Trillion today, we are strapped as a nation. With our coffer's drained, we only rely on military might, and that is no way for a country as free and strong as the US to be.  The division between our hypocritical government and its citizens is narrowing, due to the government now encouraging the same hypocritical actions to be taken by some citizens.  Telling those with student loans to just not pay them back, or are forgiven, while all other debt must be paid or go to jail.  This will continue to impact the middle class, causing it to shrink, while the lower class is moved up, simply from the weight of the middle class moving down.  Just my opinion, but open for discussion. 

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