Shootin' the Bull about further rationing

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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5/20/2024

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Live Cattle:

Rationing was stepped up last week as packers cut the slaughter pace again, sending boxes to over $314.00 as of mid-day today.  Rationing will continue until more cattle are made available to produce more beef.  some interesting numbers came across last week as well.  For the first time in 9 months, the traditional manner of feeding cattle showed black ink.  It only took feeder cattle being $27.70 lower than today, when placed in January, and a $15.00 rally in fat cattle prices, from winter low to this weeks high, to literally breakeven.   That is about $42.00 worth of adversity to start with, to overcome, to breakeven.  So, when I say feeder cattle prices are too high, I may have misspoken and stated that feeder cattle prices are way too high and fat cattle prices not nearly high enough.  Today, the starting point of the spread between the index and October fats is $61.00.  A quick punch of the calculator keys and the close of May futures at $246..67 on an 850# steer, at $1.00 cost of gain, produces a 1,400# steer that will need a price of over $189.00 in October to breakeven.  So, calling out that feeder cattle prices are too high won't make a hill of beans to the market or anyone involved, as we all know this.  What is expected to transpire is a contraction between the two.  Cattle feeders are going to start seeing fewer cattle made available and the decision will have to be made whether to chase them, or let someone else.  Too much pen space may become an issue sooner as this years pasture and hay crop conditions appear very good.  

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Feeder Cattle:

Chasing after inventory.  That is what some believe will take place.  I have no doubts there are some willing to increase risk to remain in business, but for the majority, the agenda appears so well entrenched, that they may not have to.  It may come to light that the US is able to import enough beef, keep from exporting, and grow internally what is available, to a point in which fewer beef cattle may not be as much of a burden as some think.  I would ask you to read again the above and note that feeder cattle prices were $27.00 cheaper when the cattle went on feed and the price of fats rose $15.00 in the interim, therefore the $42.00 price swing of both, in opposite directions produced profit last week.  Even futures traders appear hesitant to produce a wide basis spread.  Today's spread of the basis is $15.66 negative to August when it was over $32.00 negative just 4 months ago.  So, cut by half.  Yes, I do know time is of issue when converging, but simply look at October and November, with ample time, and they are no where near their previous widths either.  None of this predicts a higher or lower trade.   What it suggests is that profitability is slim in most sectors and not available in others.  All in all, it appears there is more discovery to be made and that is expected to keep prices within the triangle.  The top end remains about $4.00 to $6.00 higher than today's close per respective contract month. 

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Hogs:

Hogs were mixed.  The hyper volatile, methodical trading of futures has pushed the basis down to a manageable level with time remaining.  Producers are believed to have received the best of both worlds with convergence having taken place in the middle of the basis spread instead of one direction or the other.  I look for similar convergence with the feeder cattle.  

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Corn:  

Grains and oilseeds were higher today.  The rain appears to still produce some urgency towards planting.  I continue to believe that marketing while prices at these levels are available will be beneficial when harvest rolls around.    

Energy:

Energy traders were in a skinning mood today.  After selling off for most of the night, traders took a quick run higher to make a new high for the day and most likely taking out stops of earlier placed positions.  It remained volatile again today, but with a belief today's high is the termination of a correction in the bear market.  

Bonds:

Bonds are softer.  I expect inflation to come down and one of the most inflated markets is the US equity indices, gold and cocoa.  While cocoa doesn't hold much in the way of moving the worlds economies, gold and the US equity markets do.  With both at historical highs, and a great deal of money believed now on deposit, the stage appears set for something to take place.  What, I don't know, but under this administration, and the world somewhat at war, not much will surprise me.  

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