“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
6/11/2024
Live Cattle:
No one was interested in a new position in the live cattle contract on Monday. Open interest plummeted further, leading me to believe there are few interested in participation. The contraction in price of futures contracts is damning to cattle feeders, unable to hedge anything that remotely looks like a profit. The feeder cattle index made a near double bottom on 12/29/23. It only took 5 weeks to run $23.60. The price continued higher to $251.82 on 3/21. The correction took prices back to $239.45 and now trading at the second highest level in history. So what does this mean? It leads me to believe that few cattle on feed since February have much of any chance to profit. The month of July should be about the last profitable month for cattle feeder until into next year. By March of this year, feeder cattle prices were back above $250.00. No cattle placed at that level has been profitable without significant participation in beef sales, or a very glorified formula. Even then, the profit margin was most likely not very big. Long way around the barn, but cattle feeders are in a fix with seemingly few ways out but to start paying less for incoming inventory, reduce the cost of gain significantly, or have fat cattle prices soar. Neither of which appear going to happen tomorrow. So, what has happened? The consumer has shifted in a manner for which they appear comfortable at the moment. The packer has shifted and believed bringing in margin due to the elevated box price and no higher price of fats. The cattle feeder, for whatever reason, appears to be hesitant to make changes.
Feeder Cattle:
Another participant that has made changes has been the futures trader. No longer are they offering you scads of premium to market into. I think this time frame is as good of any that represents the saying of "the market can remain irrational for longer than one can remain solvent. In this case, it is that beef production is significantly greater than not only ever expected, but less than 2% total with some months exceeding last year. The seeming irrationality of paying top price for cattle, when beef is no longer in short supply doesn't make a lot of sense to me. It doesn't to consumers, packers, or futures traders either. Lastly, I don't know what, or if the cattle feeder will bid to no end, or practice reserve. What I do know is that a lot of other participants have already made moves that have created a very egregious time frame for cattle feeders.
Hogs:
Hogs continue to push lower. The basis has swapped to positive now. It is very possible cattle traders produce a like trade lower.
Corn:
Corn and beans have stagnated, offering yet another opportunity to market inventory. I expect corn and beans to trade sharply lower as there is no drought aspects and a good idea that all the acres eventually got planted.
Energy:
Energy was higher but Monday's trade was simply one bid after the other higher. I continue to believe energy is in a bear market with the past couple of days a correction of the previous move lower.
Bonds:
Bonds are slightly higher. I expect bonds to move higher. I don't expect the Fed to move in either direction for rates, hence leaving the stagflation to further rob consumers of discretionary dollars. However, it will do nothing for the broke cities of the US and Federal government for which are spending billions on illegal immigrants with no end in sight.
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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