Shootin' the Bull about forming consensus

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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6/06/2024

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Live Cattle:

It appears a consensus was formed overnight for which cattle feeders made the conscious decision they weren't going to bid any higher.  Maybe it lasts and maybe it won't, but today, no one was willing to bid higher.  With the number of cattle on feed, expected over the next 3 months, and at significantly heavier weights, there is not expected to be a shortage of beef until deep in the 4th quarter.  The consumer shifted in discretionary spending and began reducing consumption or became less willing to pay a higher price.  These were decisions made to allow them to live within their means.  The packer shifted in processing speeds that began to keep cattle on feed longer, growing them larger, and keeping a limited supply of beef available to the market.  These were decisions to bring margin back into processors.  The cattle feeder has not shifted or conceded at all.  They have seemingly done very little to defy the higher feeder cattle price.  In reality, it appears they aggressively went into a buying frenzy to out bid the other guy.  This has created a very unprofitable and risk intensive time frame for which few profits are being realized and exceptional financial risk being assumed.  This won't slow anytime soon either as August fat cattle were laid in at what is currently the highest price of feeder cattle for the year.  The October fat cattle won't fare much better, as via the CME index they are being laid in at the second highest price of feeder cattle for the year.  At present, the cattle feeder is Atlas, holding up the entire cattle price structure that falls under the fat cattle.  Backgrounders are reliant upon the price paid by the cattle feeder. That is then passed down eventually to the cow/calf.  If cattle feeders balk, a domino effect will be expected.  With nearly half of this years inventory of calves, stockers and feeders to be marketed in the next 6 weeks, this is a critical time frame to manage risk of potential adverse price fluctuation.  When those video sales get cranked up, they will be doing so at already historical highs with great expectations for other cattlemen to bid even higher. 

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Feeder Cattle:

With an even basis, everyone is buying and selling at the same price, making backgrounders all pretty much equal now. Those who use risk management, take advantage of premium, or tend to sell call option premium into the future, are believed to have benefited from the convergence of basis.  Those who did not take any action have little to nothing left to work with.  This may work in the favor of the cattle feeder were basis to move starkly positive, and I think it has the potential to do such.  When considering a mild correction of the index, a 5% decline amounts to about $12.50,with a 10% decline $25.00.  This would put the index down to between $238.30 and $225.30.  For the time being, I expect further downside movement to approximately $249.00 August to the first trend line and $242.00 for the second trend line.  Were prices to rally again, I think it would be a stretch to get them above the 5/29 high per respective contract month. I would urge you to consider the gap down and why the futures traders are no longer interested in offering you premium to market into.  Something must have changed their minds.    

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Hogs:

Hogs were mostly firmer, but mixed more than anything.  Hogs have converged basis and I don't know what to expect next.  I don't have much of a feel for the index at the moment and fundamentals appear to have not changed. 

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Corn:  

Grains are in a bear market.  Today's rally was the first after 7 days in a row of selling.  I don't expect much more price gain, but could stay sideways into next week to allow more of the oversold factor to subside.  Unfortunately, corn is only back to the lowest point where I had recommended the options strategy.  If traders can push it closer to the $4.80 level, I would recommend again initiating the options strategy trade.  This is a sales solicitation.  Beans are no different and a move close to $11.80 would have me looking hard to do something to make some sales. 

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Energy:

Energy was higher today.  I don't expect to trade much higher, but like the grains could hang around a couple of days before resuming the down trend. 

Bonds:

Bonds were up slightly on the day.  I expect bonds to move higher.  Gold has my attention as it is believed starting to resume its uptrend.  I am particularly interested in golds movement due to a belief it has some foretelling properties of inflation and or economic uncertainty.  My perception is that a repeat of the current administration would produce further inflation, while a Trump victory may spell a time frame of great retribution.  I personally don't think either are qualified, but we have entered into a period of populism.  That being, we don't elect the most qualified, we elect the most popular.  While potentially a stretch, but gold doubling in price would not surprise me one bit.  A trade of back under $2,300.00 and I may change my tune a little. 

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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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