Shootin' the Bull about keeping elevated spending levels

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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8/13/2024

Live Cattle:

A small reprieve so far in the fat market.  All higher futures trading from here will simply be converging basis.  My thought process will be difficult to sway for the time being.  That is, I believe it will be more than difficult to sustain, or increase current spending levels of government, businesses and consumers, over the past 4 years that created the current high price of literally everything.  Boxes were higher today, continuing to ration beef to the consumer.  I think it wise you have a strategic plan in place for how you will manage risk in what is believed a changing economic environment.  In a portion of this planning, I recommend you consider the next presidential administration.  While many cattlemen are believed  staunch supporters of Trump, or at least the Republican party, but in all honesty, if giving out money is what makes prices rise, then assume a Harris administration, attempting to further socialize the economy, will print as much money as needed to achieve a goal similar to Venezuela.  That is when the inflation will really skyrocket.  How do we assume this? Simply from the "Inflation reduction act" that pushed out 891 billion dollars in the name of inflation reduction.  I understand I am not the brightest star in the sky, but most can see this is a department store add suggesting "the more you spend, the more you save".  That is just not true. The more you spend, the less you have.  Especially when investing a great deal of those funds directly into significantly less efficient energy sources.   

​Feeder Cattle:

Price action over the next several months is expected to be the fundamental function of basis convergence.  The index has traded down $16.31 from its high.  The futures have declined $18.87 from the same date via the October contract​ to today's close.  So, both have moved lower with the futures simply having moved faster.  I expect more days of sideways trading in this wide range.  I expect the index to find a wave 3 low somewhere between Monday's trade and $240.00.  So, it may take a week or so to form a wave 4 correction.  This may offer some reprieve in selling that would allow producers an opportunity to adjust marketing plans. All in all though, I believe the feeder cattle market has topped and until, or unless there is an interjection of liquidity to the consumer, I expect the high retail beef prices to continue to cause rationing of consumption and that would then travel up the hour glass that less money from the center of the plate is available to work it's way up to the cow/calf producer.  

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Beef production is shaped like an hour glass.  At the bottom is the center of the plate, whether in a restaurant or at home. That demand then moves to the grocer/restaurant, then to the packer.  Above the packer is the throat of the hour glass with a damper on either side. One controlled by the packer, the other by the cattle feeder.  Both appear to have their dampers set for lower production in order to keep prices from curtailing demand.  Above the throat is the cattle feeder, then the backgrounders and finally to the top of the glass, the cow/calf producer.  Therefore, without the center of the plate being bullish, 4 years of excessive government spending, I find it difficult to be bullish up the hour glass. 

​Hogs:

​Hogs were sharply lower with the index down as well.  Plans to converge the exceptionally wide basis in hogs fell to the wayside when no fear was shown in pushing hog futures way below cash.  ​

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Corn:  

Corn was a little lower today.  Until a new low close is made, or close above $4.07 December, more sideways trading should be expected.  Beans are lower again today with downside targets very near.  In my opinion, the next event will be harvest and I look for corn to firm and beans to meander until hard data begins to surface.   About that same time is when South American plantings will have started and give traders a couple of factors to look at going forward. 

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Energy:

​Energy was sharply lower today.  Especially gasoline.  Potentially, some of this could be unwinding of spreads between gasoline and diesel fuel, but I remain bearish energy and believe the most recent Sabre rattling to be the rally.  I recommend going hand to mouth on diesel fuel needs with a $.20 break lower believed an opportunity to book fall needs. ​​

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Bonds:

​Bonds were higher. The PPI report started off the reseeding inflationary environment today.  I expect the CPI to show a like down turn.  This slight change in economic data, when coupled with what is believed taking place on Main Street USA, it suggests to anticipate bonds to continue to move 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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