Shootin' the Bull about a market top in cattle

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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8/9/2024

Live Cattle:

In my opinion, the cattle market has topped. Five wave sequences can be counted on the weekly continuation chart of live cattle and both the weekly and daily feeder cattle index charts. These charts, with the wave counts, are available for viewing at the "Shootin' the Bull" website. There is a sequence of fundamental events that helps to decipher the wave movement higher. As a great deal of those fundamental factors have been, and will continue to be addressed, it appears that the cycle of the Elliott Wave Theory is moving into a bear market realm. One in which as much as 50% of the move from the April '20 low to the July '24 high could be retraced. In the Elliott Wave Theory, upon completion of a 5 wave move, a 3-wave correction is then anticipated to retrace a portion of the upward or downward price movement of the same magnitude. In the case of cattle, we will stick with the bull markets. A great deal of the rally in cattle and beef was the excessive printing of money by the government. Today, we see that government spending has come to a point in which it can only service what socialistic and subsidized projects are already in play. With the consumer believed contracting in discretionary spending, it will be difficult to reach the same levels of spending that is believed a portion of the higher cattle/beef price. With recognition that beef and cattle supplies are not as low as have been expected, when combined with further shifting of the consumer, it leads me to anticipate a major 3 wave move to correct the previous 4-year bull market. My foresight suggests that with the increasing numbers of beef/dairy cross, that will begin to make a larger volume impact in about 6 months, the cow/calf operations will have begun to expand in earnest starting next year. This will help to further mitigate the loss of heifers and cows when expansion starts. While this may produce a rally within the down correction, it won't be expected to push prices to new historical highs. So, long way around the barn, but especially in the feeder cattle index, where it is void of any outside influence, it appears that cattlemen are not going to pay a higher price any more. When the futures leapt out in front at the start of the month, to lead the way down, it left the index sitting all by itself at a $10.00 to $17.00 wide positive basis. This turn of events has been exceptionally beneficial to those who acted prior to the change. The turn of events has produced a wide swath of quicksand to have to traverse in the now sharply positive basis. This event was likened to one of Aesop's fables, the Tortoise and the Hare. In this case, the Tortoise is the CME feeder cattle index and futures the Hare. When the starting gun was fired, the Hare ran quickly to the level of which a 10% decline of the index would represent. So, the Hare beat the Tortoise. However, the Hare is unsure that 10% is the finish line and therefore, runs back up the bunny trail to see where the Tortoise is, and when found, is expected to quickly run back to the $235.00 level. At the close on Friday, the Hare ran back $4.00 and the Tortoise came down $3.13. This leads me to expect a run back down to the $235.00 level. When, and only when the Tortoise reaches the 10% level, will we know if the finish line is really there, 15% or closer to 20%, that would put the index to within $6.00 of the December '23 low. I would urge you to consider some longer-term strategic planning that would be expected to help you navigate what is anticipated to be a major bear market correction. Even if you think I am dead wrong, consider the other side before you continue to assume the risks of paying historical prices when it is believed consumers are contracting in discretionary spending. My analysis suggests the $261.88 high of the feeder cattle index will stand for quite some time into the future.

Monday will have an important WASDE report. I have recommended this week to own the December $4.10 corn calls at $.13 or better. This is a sales solicitation. The importance of this report, due to a USDA review of planted acres, leads me act, before I may have to react. Were it to come out lopsided in either direction, I believe the $.13 premium will be insignificant to the price movement higher or lower. The ownership of is for a very specific reason. I do not want to feed high corn to high feeder cattle when fat cattle prices are declining. If corn moves to $3.50, you will be feeding $3.63 corn. If corn moves to $4.50, you will be feeding $4.27 corn. Both corn and beans have made new lows this week. A trade lower from the report and farmers may have to just cave and make sales. This would provide the commodity funds, short the market, the opportunity to cover without disturbing the market. The flip side is that from a higher trade, the farmer could then become emboldened to hold off on sales and funds would scramble for a very narrow exit door. I see great potential for this report to cause significant price fluctuation. If wrong, and it is status quo, you are at risk of losing 100% of the premium you paid for the option.

Energy recouped a portion of its losses last week. Bonds sold off sharply for most of the week, but found support at Thursday's low and rallied on Friday. I expect bonds to continue to move higher and energy prices lower. I continue to recommend going hand to mouth for diesel needs at the moment. A trade $.20 lower would lead me to start inquiring about booking fall needs. Bonds are expected to continue higher, although with statements from Powell that they were going to reduce the balance sheet, if he does cut, it will look good for window dressing, but the reduction of the balance sheet would be expected to counter some of the aspects of the lower Fed funds rate. It does not appear that Democrats will be able to push another spending bill through with the elections around the corner. Therefore, I continue to expect the drain of resources on all states, cities, and municipalities as they continue to grapple with having to feed, house, cloth, medicate, teach and clean up after untold millions of illegal immigrants allowed to cross into our country. If Harris is elected, I would expect one of the largest printings of money seen to date as they will attempt to further socialize the US, and creating hyperinflation is a great way to do such when viewing other countries. A Trump term won't be expected to be rosy either due to expectations of implementation of tariffs on China, and a much harder line on foes. I think it a good time to review the past 4 years and how the 3.5 trillion-dollar influx into the economy has changed it. Consider what it will take to keep it moving at a pace similar to the past 4 years or what may occur if left unattended and we see further economic erosion.

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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