“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
1/9/2024
Live Cattle:
Trading the range. Futures traders are having a difficult time finding a direction. The winter weather has yet to impact much, but what is coming may increase the uncomfortable conditions. I don't expect it to do much, or last long, especially in the front two months, where there are a lot of cattle on feed and weights, if lower, would be coming off historical highs. With expectations of significant volume trading this month in stocker and feeders, those feeders may be set back a few weeks before placed. This would impact the June fat cattle contract, and potentially add further credibility towards it moving higher. The storms won't do much for demand as it rolls into the north east, where all the people live. A firm undertone is what I expect. A trade of February to $173.00 and or April at $176.00, will lead me to make some marketing recommendations towards those contract months.
Feeder Cattle:
Cattle feeders are not anticipated to be nearly as aggressive in bidding feeder cattle higher, as some may think. The still $54.00 spread between starting feeder and finished fat puts tremendous pressure on the August fat to perform, as well as keeping input costs lower. The alternative would be to see March feeder cattle trade lower and August fats higher, narrowing the spread between the two, and potentially opening up some margin for profit potential. It is going to be a very long row to hoe going forward as producers will want to see prices soar, while cattle feeders will attempt every way possible to avoid the pitfall of '23. Remember, the feeder steer that went on feed at the levels of the historic high of the index has another 6 weeks to go before slaughter. Cattle feeders will then continue to reel in losses for another couple of weeks without some price gains in fat cattle. Retracement levels for the index are going to be helpful in setting parameters for marketing spring inventory. It is those retracement levels I am attempting to achieve in the futures for the fence to be placed around. I highly recommend you use tonight to set some parameters yourself for price levels you will be willing to live with when the gavel slams on your cattle. Were the storm to intensify, futures traders may produce the opportunity you have been looking for to market inventory for this spring.
Hogs:
Hogs were higher again today. My conspiracy theory, not to be confused with fact, and great knowledge of how novice conspiracy theories are to trading, but all information I gather suggests production of hogs is going to remain elevated in a time frame that liquidation was desired. As humans sell the futures, in anticipation of lower prices to come, they tend to exhaust themselves financially in what they can handle. As in, if you can margin 3 contracts, and begin to run out of margin money, you won't be selling any more hogs. However, the computers, for which rarely hold positions more than minutes, can manipulate the buying in a manner that produces more buy orders than sell. Hence, human selling has little impact on the market, without the full force of humans participating. Again, just a theory to help sooth being wrong on direction for the moment. If wrong, then a trade above $93.80 will tell the tale and stops at $94.05 most likely to be taken out. At today's high, traders were able to hold the price below the first of three down trend lines drawn over the past 6 months.
Having learned a little more about vertical integration of hogs, it appears to me that with the threat of recession, and at least probably some commodity deflation, the packers are entering into six and twelve month contracts at a significantly negative basis. This is beneficial to the producer, and detrimental to the packers. Were the packer to find it difficult to move pork cuts out into the future, it would seemingly leave them hanging out to dry without some form of downside price protection. In my opinion, not to be confused with any fact at all, but if the packer has to sell to cover, I would anticipate it leading to multiple days in a row of heavy selling. Worse, would be a continual decline of the index, with next support level at $47.00. What is good about the hog market? Demand could increase, China could have hog production problems, and Mexico could start to increase imports. None of those seem very likely, but could materialize.
I do realize that this basis spread is not historically wide by any means. However, the basis spread seems exceptionally beneficial towards producers and detrimental to packers. What if packers cut kills to help promote a higher cut out? This market holds a great deal of interest to me.
Corn:
Corn and soybeans remain weak. The slightly higher trade today, after a new contract low in corn and new low in this decline in beans, doesn't excite me at all. Friday's WASDE report is anticipated to show large world grain supplies, with the US swimming in corn and South America in beans.
Energy:
Energy traders continue to produce exceptional price ranges for seemingly very little fundamental news. With trading volatile, a very sporadic down trend, and seemingly the gasoline the weakest of the complex, I anticipate energy to trade lower.
Bonds:
Bonds continue to unfold a wave 4. Thursday and Friday will have some economic data with the CPI on Thursday and PPI on Friday. These two data points will help to move bonds. Were they to trade lower, I will be looking for a place to buy bonds.
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.
On the date of publication, Chris Swift did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Disclosure Policy here.
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