Shootin' the Bull about rate cuts, but maybe not?

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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7/31/2024

Live Cattle:

A softer tone in fat futures today.  Box prices are believed being manipulated by packer slaughter pace.  With boxes having risen recently, this may be leading some to think greater demand, where I view it as shorter supplies.  What is the industry continuing to do? Ration the amount of cattle and beef as to not run out, or run the price so high, it doesn't crush consumer demand.  With seemingly every alternative being sought for greater beef production, it appears to have reached a stalemate.  A teetering point is expected to be a surge in consumer spending, to push beef and cattle prices higher, or a significant contraction in consumer discretionary spending habits that would push beef and cattle prices lower.  Regardless of the camp you are in, the price alone, and ability to fix with a plethora of derivatives available, suggests there should be no weeping or gnashing of teeth, whichever way prices move from here.   

​Feeder Cattle:

Spread trading appears to be a somewhat new occurrence in the feeder cattle market as of late.  Of the most interest in these spreads is that there is little concern selling the back end down from the index.  While there is no doubt the cattle feeder will appreciate greatly from this, note that it is another turn of events that is starkly different than the past two years.  Basis swapped from enormous negative to now a positive.  There is no longer premium in the back months for which was $20.00 to $30.00 premium the past two years.  So, just the price structure of the board alone has produced a dramatic change in availability to market. Backgrounders are urged to consider the obvious changes having taken place and consider this may just be the start.  ​

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Hogs:

​Hogs were higher.  I expect hog futures to converge a portion of the current wide basis spread.  Although not seasonally aligned to do such just yet, the current negative seasonality is coming to a close around the middle of August.  So, there may be some volatility, or a slow run higher until the seasonality reverses, but I expect hog futures to move higher.   ​​​

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Corn:  

With new lows in beans and corn, marketing becomes a mote point. Who wants to sell cheap grain?  However, the flip side of this is that those who need to procure feed stuffs are in the cat bird seat at the moment.  Especially with soymeal.  Soymeal is down 25% from last November's high.  The carry is inverted out to December with a fledgling carry charge from December out to July.  Therefore, I recommend that if you use soymeal as a feed source or additive, buy the at the money call options in the month you wish to physically buy meal in, or potentially take delivery.  This is a sales solicitation.  I recommend you study this  carefully.  Regardless of whether meal continues lower or not, the carry spreads and 25% drop in price makes this a very attractive procurement time frame.  An email from ADMIS this afternoon noted that USDA may lower acres in its August 12 WASDE report.  With beans and corn both at a new low from contract high, pretty much all but the final price of the anticipated move lower has been fulfilled.  While I still expect the downside targets of $3.80 corn and $9.80 beans to be met, both have made a 5 wave move down.  If you buy bean meal, call us and let us help you manage potential adverse price fluctuation.    

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Energy:

Energy was screaming higher today and as I write, still making new highs for the day.  My opinion only is that the shorts got caught and there were a lot of them.  News of middle east assassination's, and the Biden administration pulling out all the stops to win over consumers by finally starting to fill the strategic reserves at a whopping $77.00 per barrel, appears to be a great deal of the buying today.  Stocks were drawn down as well today and that pushed the energies even higher when that was released.  To me, these seem like very short term issues with a longer term issue of shifting consumer demand believed going to impact everything. So, I'll take today's enormous price action with a grain of salt and see what tomorrow brings.  ​​​

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Bonds:

​Bonds continue to firm.  The Fed kept rates the same, but did mention lowering the balance sheet a little.  This suggests the selling of bonds to lower their balance sheet, yet that would drive rates higher, without a raise of the Fed Funds rate.  This is a magical way of keeping rates high, in a somewhat undisclosed manner.  Until we see bonds higher, I don't think they will step in just yet.  A bond price trading higher would behoove them to let run as high as possible before marketing some their previously purchased issues. So, I take Powell's comment with great interest, but not sure yet they are ready to drop the hammer.  I continue to expect bonds to move higher with the new highs made today from the contract low. ​​

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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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