Shootin' the Bull about traversing quicksand

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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8/23/2024

Live Cattle:

I have covered a great deal of material and any you find incorrect, want to add to, or disagree with, please feel free to respond.

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At a turning point of cattle cycle

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In my opinion, traders opened a wide swath of quicksand for producers to have to traverse as markets seek convergence. I presented a webinar this week that sums up my analysis for the short term and longer, into the 2027-time frame.  The webinar can be viewed HERE.  It goes through an Elliott Wave analysis of the current cycle and some aspects that are anticipated that would help shape the turn of this cycle.  We used the lower trading this week to further adjust hedges.  Having multiple tools to work with, when attempting to manage significant risk, is believed beneficial to producers.  The unfortunate of some is that when they are most needed, they are unavailable.  As in, you can no longer purchase your LRP policies prior to an on-feed report.  Nonetheless, consumers are continually dealing with record high retail beef prices, as are grocers and restaurants.  Packers are attempting to find margin, with some progress made this week as cattle traded lower and boxes higher.  As the old saying goes, "the sun doesn't shine on the same dog's a** every day", we see that first hand in the change of basis in feeder cattle.  From what was once the absolute best marketing basis spreads available for over 2 years are long gone, with the sun now shining on cattle feeders.  Cattle feeders now have an opportunity to buy cattle cheaper in the future than anywhere today.  This is a stark reversal from having to consistently buy cattle hand to mouth in an attempt to pay the lesser price.  With feeder cattle futures at a discount, we went to work this week producing recommendations for cattle feeders to use the basis spreads in their favor. How long this will last is detailed in the webinar.  Comments are shorter due to the importance of the webinar relaying my analysis.

Prior to the last WASDE report, I made recommendations to buy the December $4.10 corn calls, in an attempt to keep from feeding high corn to high cattle.  With the acres portion of the report not as bad as some expected, and this week's pro-farmer tour confirming, what most already knew, I chose to sell those options and retain the remaining premiums for another time. Grains and oilseeds continue to be weak, but the one of the most interest continues to be soymeal.  Down $173.30 from its November of '23 high, with $85.60 of that coming from the 5/31 high.  As well, this puts soymeal to within about $28.00 from over the past 8 years lows.  With little carry in the soymeal market, I have recommended for end users to buy the $10.00 out of the money soymeal calls in the month you wish to take delivery in.  This is a sales solicitation.  Energy was weaker for most of the week until Friday.  With both gasoline and diesel fuel having made new lows in this decline this week, I am assuming the down trend has resumed.  I expect energy prices to continue to move lower.  Bonds were stronger at weeks end as the Fed seems to be focused on labor and how further economic movement will impact employment and wages.  His fear was of seeing a slowing labor market, that tends to come in a recessionary environment.  The US dollar has turned negative and is expected to continue lower.  While this is pure speculation, but were a Harris administration to come into power, she has already laid out her 1.7 trillion-dollar government spending plan.  The difference between this one, and the 3.5 trillion handed out, is that this one is set for pure government spending, while the other went out into the economy as a whole, allowing everyone to benefit from.  In this case, only the subsidies will be maintained with expected large government housing projects for the majority of.  If printing more dollars is expected, then it would be natural for the US dollar to decline.  If the US dollar continues to decline, it may be signaling a Harris administration.  I do believe markets can be foretelling of events.  I hope this is not one of them.

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Feeder Cattle:

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​Cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 11.1 million head on August 1, 2024. The inventory was slightly above August 1, 2023.

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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