Shootin' the Bull about gauging basis

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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8/27/2024

Live Cattle:

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At a turning point of cattle cycle

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I am gauging some of my actions on basis spreads and how much narrower traders will push futures to converge for places to begin marketing again.  At the moment, I believe starting at somewhere close to a $2.00 positive basis and continue up to a $2.00 negative basis, were futures traders to get real gamey.  Of some issue is time.  Although price expectations can be met, I am a little off at the moment as to how quickly this move should unfold. Due to the unknown of  timing, one will be expected to use the basis spreads as a guide for when to start avoiding potential downside risk. 

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Feeder Cattle:

I think futures can trade around the world and back again before the wave 2 correction is complete in the CME index.  Like the fats, using basis spread tensity is believed as good of place to start as any.  Even if there is more time to trade sideways, achieving the higher price, or improved basis spreads will help to mitigate timing.  Cattle feeders have to find some value in bidding up for inventory again.  I think this will come very slowly without significant advancement in fat cattle prices.  Feed costs are low and can get lower, but most likely, not by enough to offset the higher feeder cattle price.  As well, with the US going into harvest, it suggests South America going into planting. So, there should be some price fluctuation in both corn and beans that is not necessarily all lower trading.  For the moment, I believe giving the market a little time to sort out the basis spreads will help in adding more data to the analysis.  What continues to be expected, without interruption, is more volatility in trading.  As some have moved towards reliance on alternative marketing derivatives and tremendous loss of futures participants in the fat market, there is no doubt in my mind that volatility will remain high, creating some wide price gaps to contend with.  Going forward, be very specific in your needs and attempt to manage risk in a manner that you can live with the consequences of.   

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​Hogs:

​Hogs were higher today with a little interest in trading.  The lean hog index was down $.36 at $87.86.  The seasonal tendency for December hogs is to trade higher from here into the middle of October, via the Moore Research.  I expect to see further convergence of basis with futures moving higher. ​​​

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Corn:  

​Corn was a little firmer on the day.  I would expect a lack of selling more so than a surge in buying.  Soymeal was higher today and I continue to believe that ownership of the calls in the month you need will allow you to manage the production of product more closely knowing that some input factors are solidified.    

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I recommend buying the $10.00 out of the money soymeal calls in the month you will need to procure inventory. This is a sales solicitation.  

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Energy:

​Energy is a burden.  The burden with energy is that it is hyper volatile and seemingly hinged more so on the antic's the middle east and Russia/Ukraine than a slowing US consumer.  Recall that yesterday this was a problem and today, a burden.  That is commodity trading, but the point attempting to be made is that when there is no issue abroad, energy trades lower.  That is believed due to the weakening US economy.  When disrupted by overseas antic's, it shoots higher and continues to produce elevated retail prices at the pump. As always, in most retail cases, prices are quick to elevate and slow to subside.  Energy appears no different.  What it does is continue to be that thorn in consumers side that when touched, creates an "ouch". ​​​

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Bonds:

​Bonds have been weaker for most of the trading session.  I don't have an answer for.  I continue to expect bond prices to rise as the tale of two cities continues to unfold.  On one hand there are economic numbers that shows the economy still bustling with activity.  On the other is the consumer complaining about the high grocery and fuel prices, high utility bills, high health care and of course high insurance.  A Harris administration, having already stated their 1.7 trillion dollar government spending plan, may have out done herself on the aspects of the government building 3 million homes in her next 4 years.  That computes to about 62,500 homes a month. Quite a large undertaking to say the least.  Why would the millionaire's and billionaire's fund her administration, knowing that her policies would not necessarily be conducive towards their business.  The main answer found is that she will most likely do what she states and since businesses have been dealing with leaders for decades, knowing what someone will do has a level of comfort.   With Trump, they felt his vindictive manner and varied policies could disrupt a great deal of what is already in place for businesses.  Businesses don't like to have to retool upon every new administration.  So, that is what I read over the weekend and to some extent it makes sense, but the loss of more freedoms and greater government control does not appeal to me either.  There is an unfortunate that in all respects is true and very well documented throughout time.  That being, the US has reached a point in which we elect the most popular, and no longer the most qualified.  Both appear to be on polar opposites and although I am very familiar with Revelations 3: 15-16, I think we could use a little middle ground at the moment.  ​​

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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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