Shootin' the Bull about Aesop's fables

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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8/7/2024

Live Cattle:

The exodus of traders continues in the live cattle contract.  With pens chocked full of expensive feeder cattle and one of the widest spreads I've seen between starting feeder (index) and finished fat (December contract).  It peaked two days ago at $78.30 and has softened just a tad to $77.32 today.  That is a great deal of premium to have on top of your starting venture. 

​Feeder Cattle:

Back in the old times of BC, I'll bet Aesop probably never dreamed his story of the Tortoise and the Hare would have implications to the feeder cattle market today.  The termination of the triangle is believed the starting point of cash and futures moving lower.  When the fundamental conditions changed to a point in which action was deemed necessary, the futures (Hare) leapt out in front with ease, leaving the Tortoise (FC Index) still at the starting line.  In just three short days, the Hare had reached the finish line for which the expectation of where the Tortoise would be in the following days or week. A 10% decline of the feeder cattle index puts it at $235.70. what is currently believed as the finish line.  Where are most futures trading today? At or just slightly above or below. So, the Hare has had to stop, due to not knowing if this is the finish line, or just a mirage, and wait for the Tortoise to catch up.  The Hare at times gets a little nervous when he can't see where the Tortoise is, so he skips back up the trail until he spots him, and then turns to go back to what is believed the finish line. Today, the Hare skipped up about $2.00 and saw the index was still moving lower and started back towards the finish line.  Until the Tortoise begins to stay within sight of the Hare, I would expect the Hare to continue to skip up and down the trail until the Tortoise has made his way very close to the line.  At that point, when both are very near the finish line, will we know if that is the finish, or just a mirage with further to go to meet maybe a 15% or 20% decline.  

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Cattle feeders have an issue with this coming on Monday at 11:00 am cst with the release of the WASDE report.  The report is expected to show a review of the planted acres and regardless of higher or lower, I believe will produce a $.50 rally or decline in corn and a $1.00 in beans.  At present, the price of corn and beans is a factor of every flooded, replant, prevent plant or ponded acres, and whatever drought aspects there are at the moment, versus the yield of acres not impacted.  More acres and it will suggest a sharply lower trade as the current situation in this years production appears slightly burdensome already.  Fewer acres and it will suggest a sharply higher trade as commodity funds will dash to the exit door and end users of will be scrambling to procure inventory as quickly as possible to avoid the higher price.  Since you are now aware of this, I recommend you do something about it before the report on Monday.  In my opinion alone, were corn to move higher, it would push the finish line down towards the 15% range of $222.60 or worse 20% at $209.54 of the feeder cattle index.  The 20% level is very close to the December of '23 low.  

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I continue to expect a top to have been made, especially in the feeder cattle index. Unlike the futures, there is no influence of participants outside of the industry, computer Algo rhythmic programs, or influence of outside market fluctuation. Whatever price reflected of the index is purely human interaction of the cattle market. Therefore, I believe it has a greater propensity to follow the rules of the Elliott Wave theory more than futures do. At present, my interpretation of the Elliott Wave is that a major 5 wave sequence from the April of '20 low to the July of '24 high has been completed. The 5th wave of this sequence is believed from the December of '23 low to the July high. The 5th wave of the 5th wave is believed from the May of '24 low to the July of '25 high. Note that on both the weekly and daily of the index, the 5 wave move that can be counted in all three sequences of magnitude of the wave count.  The Elliott Wave Theory is believed a reflection of the cycles of production most commodities and some companies go through.  Participants, in all forms, help to form the waves from which at times production or supply/demand issues cause corrections in the main direction of growth.  Once a cycle is complete, a correction of the entire cycle then begins to unfold, reflecting the completion of the cycle of production.  In this case, there was a great need for beef as consumers were privy to excessive government spending.  The shortage of cattle helped to propel prices higher, to a point in which alternative methods of beef production and pricing scales implemented to the consumer that rationed beef demand to keep from literally running out. Today, that spending is drying up and beef production nowhere near as low as was anticipated.  Hence the cycle of great demand and short supplies is beginning to turn as consumers are slowing or continually shifting in protein purchases, as well as, the ability to import more cattle and beef, grow what we have bigger, and further explore the beef/dairy cross. In what to expect next, the Theory suggests that upon completion of a wave count of the same magnitude, the correction will be to the wave 4 low of the same magnitude. At present, the spread between a 20% decline and the wave 4 low is approximately $6.00.  

​Hogs:

​Hogs were sharply lower today.  I made recommendations to buy December hogs with a sell stop to exit only at $66.90.  Today, that stop would have been executed.  This leads me to believe the wave 2 is still incomplete and I will be looking for another point to own December hogs. 

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Corn:  

Nothing else to interject here from what was stated above. Monday's WASDE report is expected to cause great price fluctuation in grains. 

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Energy:

Energy was higher today.  I believe this to be a minor correction of a larger down move in progress.  I recommend you continue to go hand to mouth on diesel fuel needs with buy orders laying at $.20 under today's price to top off farm tanks or fuel for fall harvest. This is a sales solicitation.  That would put spot diesel at around $2.10.   ​​​

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Bonds:

​Bonds sold off further today, but maybe have found the bottom of what is believed a correction of the sharp increase in price.  

I expect bonds to continue higher. 

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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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