Shootin' the Bull about marketing

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

1/4/2024

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Live Cattle:

Nothing definitive is believed to have materialized today in cattle.  A note read this morning suggests current cattle on feed is near record for this time of the year.  Packer margins went backwards this week and the Rib plummeted, taking the box complex with it.  Packers have no incentive to slaughter on Saturday and are believed going to reside in the trenches until they can see some margin begin to form.  Cattle feeders may get some reprieve this week on losses, but it won't be by much.  With the higher cash trade this week, but higher price paid when placed, should keep the loss at about last weeks of $300.00 per head.  The division between too many cattle on feed, and not enough, should start to widen after March. I see little that would shift consumer demand to be willing to pay a higher price, or increase consumption. A $3.00 rally in February and or April would lead me to want to market inventory.   

Feeder Cattle:

Cattle feeders and backgrounders alike are having to work more diligently in marketing and procuring, due to the basis having narrowed sharply.  Cattle feeders, needing to buy feeder cattle, can buy cattle cheaper via the cash markets than futures.  Especially the further out you go.  Backgrounders, needing to sell feeder cattle, don't have near the futures premium they once did, and basis no longer at a width that once provided significant opportunity for marketing at higher prices.  My bold prediction for 2024 is that the feeder cattle index won't exceed its current high of $254.10.  The main reason is that so few benefited from this price, it is unlikely to result again.  Nonetheless, futures traders may try their best to push prices higher.  That is where you need to step in.  If futures traders begin pushing contract months to price levels for which fence option hedges can be initiated that produce a minimum or maximum sale price at or above the historical high of the index, get your marketing done quickly.  Remember that if you are going to hedge cattle to be marketed on a summer video sale, and you use the August futures contract, whether options or futures, you open yourself up to basis risk that won't have time to converge, due to you already having marketed your inventory on the video sale.  So, consider that carefully before you act.  Next, I think it very possible that the only profit potential backgrounders will see this year could be in the basis spreads.  That meaning, the profit comes from having marketed with futures or options at the premium level of the contract.  Last year, up to September, backgrounders made the basis from cash moving up to the levels of futures.  Lenders are urged to consider this and help steer their clients towards marketing where premiums exist.  If you do not understand basis, you need to.  If you need help, contact us. 

I think the A wave continues to unfold.  I think it as likely to push prices $5.00 to $8.00 lower as it is higher at the moment.  Price will mean a great deal as to what is recommended and for who.  At present, I feel less likely to do anything at current level. A move $5.00 to $8.00 higher or lower would spur some action, although may not change the basis by a great deal.  The index continues to move in large swaths due to the lack of volume.  It may take another 2 weeks before enough volume starts to show up to get a more accurate reading on what cattle feeders will pay for incoming inventory.    

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Hogs:

June hogs moved sharply higher on the front end today.  Considering that is off contract low, it doesn't lead me to change anything.  I anticipate hogs to trade sharply lower with a target of June to the index and a target of the index to $47.00.  My comments have spurred some comments and phone calls.  Of the most interest is the risk and who assumes what.  Seemingly, producers appear to be heavily marketed out to the summer months.  This suggests packers are long the market, and maybe by a little too much.  The producer is flat.  Now, not only do I look for a hog liquidation, but stand in wait for the potential of a packer selling futures or buying put options to protect forward priced product that may or may not have had the meat sold out front yet. 

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Corn:

Corn was a tad higher and beans weak.  Corn is about as lethargic of a market as there is trading at the moment.  A tremendous amount of grain stored is believed one of the issues, but simply the low price another.  Maybe a higher trade would spur some sales, but I think a lower trade would do more to shake grain lose than higher.  I anticipate beans to continue lower.  The loss of the meal strength and crush margins leads me to believe beans are too high. 

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Energy:

Energy continues to be exceptionally volatile.  This leads me to anticipate a sharp move directionally.  Unfortunately, I am still perplexed as to direction.  Having been beat to death trying to stay long, I just haven't been able to push myself back into that misery.  Being neutral to negative isn't much better, but it goes along the lines of my thinking of either recession or deflation.  

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Bonds:

Bond traders continue to form a wave 4 correction.  I anticipate a wave 5 rally.  Today's ADP report showed a larger employment figure than the trade guess.  Friday's unemployment report will help to confirm or deny.  I look for significant movement in bonds on Friday.  

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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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