Shootin' the Bull about futures traders

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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6/12/2024

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Live Cattle:

The average price paid for incoming feeder cattle in March was $249.40.  Basic calculations of 550# at $1.00 per pound produces a break even for a 1,400# August fat at approximately $190.70.  Today's close of August is $178.32.  The packer, nor futures trader, seems to care as they have both shifted into what is believed a more desirable position than bidding relentlessly for cattle, or owning scads of futures contracts.  The agenda remains well in place that continues to ration beef to the consumer.  This weeks box price is expected to be the top for the year as the only holiday left to buy for is the 4th of July.  I think a lot of that was bought at the end of last week and start of this.  Regardless, the cattle feeder remains the next entity to shift in production that either sends feeder cattle prices to the moon, creating a stronger supply line of vertical integration with fewer participants, or 10 to 15 percent lower, by simply folding their hands in the sale barn.  I don't know which, or do I believe the cattle feeder knows either.  I have no doubts that all want to stay in business, but everyone is telling me there isn't going to be any more cattle for a long time.  Hence, way too much feeding capacity for what may come over the next 2 to 4 years.   

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Feeder Cattle:

While not exact, but seemingly the volume of sales for this years corn belt classic was down 1.2%.  Tony St. James discussed with me this morning of a conversation he was privy to over the weekend with cattle producers.  The question of expansion came up and was stated as, these prices are hard to pass up when considering retaining heifers.  My personal opinion is that we are betwixt and between liquidation and expansion.   The weather could not be more conducive for forage and hay production.  Still, producers do not seem to be holding back significant numbers of heifers.  I believe that expansion won't take place to any extent for years as the industry imports more beef and continues to explore the dairy beef cross.  When coupled with the rationing high beef prices to the consumer, it will take a fire sale to begin to shift demand back to cuts over the grind. 

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Forget all of that, the backgrounder has lost the futures trader, at least for the time being.  While open interest is down, it is the continual contraction of price that is converging basis, giving only a fraction of the premium once awarded to producers. Without those huge premiums, backgrounders are pretty much equal now.  Those who use futures and options to help create a higher marketing price can't any longer to the extent they once could.  So, think of this, why now is the futures trader less willing to assume your risk at an enormous premium, at a time when you think cattle should not only be the highest, but even fewer coming down the pike?  I think it is as simple as the agenda is working and by the time we reach the lows of the herd, the consumer will have adjusted consumption to price, the packer slaughter pace keeping margin open, and an increase in imports and the dairy/beef cross for which there will be little price variation due to a shortage of beef at these price levels.   

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Hogs:

Hogs bounced a little while the index dropped to $91.32.  

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Corn:  

The grain complex went through the WASDE report with little flare.  Beans continued lower and corn was able to hold on to miniscule gains. Wheat was lower and is expected to continue lower as the US harvest is large, with good yields.  I believe the grains and oilseeds to be in a bear market with beans and wheat already having resumed their down trend and corn believed soon to follow.  

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Energy:

Energy was higher again today, but was off its high by quite a bit.  I have read a couple of articles discussing the increase of oil production in the near future with potentially less demand.  That would be in line with what has already taken place in the demand for diesel fuel. 

Bonds:

Bonds are sharply higher.  I expect bonds to move higher. The Fed didn't move an inch and are not expected to anytime soon.  The continual, excessive government spending will keep inflation high, but seemingly it is having an impact on the consumer that isn't given anything, as this month finally saw a down tic in the CPI.  Equities soared again today.  While I have heard that this market tends to make a lot of people feel really good about their savings, and therefore willingness to keep buying, but it is a market and therefore subject to decline. 

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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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