Shootin' the Bull about Uncharted waters

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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8/29/2024

Live Cattle:

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At a turning point of cattle cycle

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A lot of attention is being paid to the cattle market at the moment as there are multiple factors at play.  From a conversation this morning, a statement made of "these are uncharted waters", seems to tell the exact tale. The formidable business of the beef/dairy cross has produced intended and unintended consequences.  The intended is greater beef production, with unintended being lesser milk production.  As well, fewer dairy heifer replacements. The most ardent of bulls are seemingly starting to soften as beef production met our expectation of equaling or exceeding 2023 production.  To achieve this, several avenues were explored for which today are an intricate part of US beef production. Beef prices have remained sky high through the summer, believed perplexing consumers and causing further shifting to the grind.  Were they to have to shift again, it most likely would be to a competing protein.  Restaurants are feeling the pinch as well with lower traffic at some, and others offering deals to attract consumers. With the Labor Day weekend ahead, all the beef buying is pretty much over with and the over $9.00 drop in boxes this week tells that tale. Were consumers to produce good movement of over the weekend, it could encourage futures to tighten basis a little more.  Especially if cash were to stabilize, or trade higher.  What is being sought is a narrow enough basis to allow for hedges to be placed with the least amount of discount of futures available.  That is a tough row to hoe at the moment.  Technical indicators could use a few more days to move higher before I would feel more comfortable.  Unfortunately, the market doesn't care how comfortable or uncomfortable one is.  I remain more than perplexed, but believe at the moment, futures traders may find the basis spread at a level for which narrowing by futures could take place. 

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Feeder Cattle:

Normal conductivity of business is believed still very much at play.  The strengthening vertical integration has cattle being bought, regardless of price.  As well, feeder cattle, via the CME index, are $17.00 cheaper than a month ago.  This factor is expected to help achieve the anticipated correction of the index back to around the $250.00 area.  An issue will be whether or not the futures traders try to run up to the index, or do they hold their position closer to expiration to see how convergence of basis will take place. Going forward, I think it won't be too difficult to keep beef production elevated for several more months.  Primarily due to the increased weights, seasonal tendency for gains, and imports of both cattle and beef elevated.  This aspect is what is anticipated to produce the C wave decline of the index, if it materializes.  A great deal of work has been done this year in consolidating production into fewer hands.  If what may be considered full integration has yet to be achieved, then the continual decline in cattle, whether beef, dairy, or from foreign lands, will be expected to produce another roaring rally to clean up the remainder of those outside of vertical integration.  The hog industry had an enormous rally in the midst of its decline that vertically integrated the entire industry.  So, if the beef/cattle industry is attempting to vertically integrate with higher prices, a sharp decline can't be ruled out as another function of the steps taken to form such. The more I write and attempt to garner more information, the quote today of "these are uncharted waters" is ringing true. 

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​Hogs:

​Hogs were higher.  The index is down $.37 at $87.45.  I continue to recommend being long December hogs with a sell stop to exit only at $69.90.  This is a sales solicitation. ​​​

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Corn:  

Grains and oilseeds were higher.  Soy oil was sharply higher.  As thought, troubles in South America were expected to be the catalyst for grain movement and flooding stories today, producing a slow start to planting, seemingly gave everything a boost.  Meal was higher, but took a backseat to oil and beans.  I have had to recount the waves in corn a couple of different times as the prices have mitigated into smaller ranges.  The wave count below is believed correct for the moment, and will remain so unless a new contract low is made.  While a rally of significance may be long in coming, I don't think back above $4.00 and hold there until the combines run would be too difficult.  Once the combines hit the fields, farmers will watching yield closely to see if it meets current expectations.  ​

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I continue to recommend end users of soymeal to own the $10.00 out of the money calls in the month you will be taking delivery.  This is a sales solicitation.  If you wish to assume more risk for the potential of a lower premium, then I recommend buying the at the money call and selling the $20.00 out of the money puts.  This is a sales solicitation.  

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Energy:

​Energy was lower, sharply higher and closed higher, but well off the highs.  Talk about volatility, this market is ripe with it.  Nonetheless, I continue to believe energy prices will trade lower and would continue with hand to mouth purchases of fuel.  Traders have pushed carry charge back on to the Heating Oil contract months.  Therefore, today is the cheapest price.  ​​​

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Bonds:

​Bonds were soft again today.  The GDP report showed higher than expected growth by a tenth of a percent in most cases with some two tenths of a percent.  These fractions are meaningless to those struggling.  While a novice opinion to have, but I continue to believe that government reports mask what is taking place in most consumers lives. That being, unable to afford a great deal of necessities.  I am unsure what evil lies in some that want to see strife, or worse cause it.  When I view aspects of giving illegal immigrants, loans, handouts, medical treatment, housing, and food, have to clean up everything after them, their lack of consideration for US citizens putting up with them, and reducing their actions of crimes to nothing, it can foster resentment from those doing everything possible to live within the laws of the US and its taxation system. These too are very uncharted waters allowing millions of undocumented illegal immigrants into our country for which there was never a plan of how to integrate them into our society. How do you integrate someone into your society you don't know is here?    ​​

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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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