Shootin' the Bull about a lot of basis swing

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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9/9/2024

Live Cattle:

A lively bit of action today as traders were optimistic, pessimistic, and then ultimately optimistic at the close.  The basis width is believed to have been a little too wide at today's low, causing futures traders to buy the market to narrow the basis.  While these basis swings aren't anything new to old timers, the newer traders/producers are getting some good experience with basis and hopefully how to use it to your benefit.  As in, seemingly an opportunity has recently been presented in which a cattle feeder could begin laying into inventory at the first of the year for between $19.00 to $29.00 lower than current feeder cattle index. Fixing input costs may or may not be of great advantage.  In this case, where one is able to lock in some of the cheapest corn in 2 years, but also now buy feeder cattle starting at the first of the year for $19.00 to $29.00 cheaper than today, and that would equate to over $39.00 from the July '24 high. So, again, the sun is shining on a different dog now and it is up to you to see how it may benefit your operation by fixing some of your input costs.    

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Feeder Cattle:​

​Back grounders are urged to consider the current width of basis to help make the next decision.  That being, if you are hedged, you may want to consider rolling down long put options, swapping short futures for long put options, or buying back short call options.  If you have not been hedged, you may want to consider a narrower basis to work with than at present.  Last week, traders were able to narrow basis to within $2.00 in some months, but still $4.00 and out in others.  This is when recommendations were made to get something done sooner than later.  With the turn of events from last Thursday having produced a near $10.00 decline, for which was all done on the futures side, it may be that with the index still elevated that futures trade back closer to the index.  Long way around the barn, but basis convergence appears more likely at the moment than further divergence.  While basis may narrow, I don't expect it to go negative.  Even with a rally in the index.  At the moment, a 50% correction of the index would put it at $250.70.  Today's higher reading will help the futures hold their gains made today.  There is a great deal of work to be done before the fall and what is expected to be further weakness in the cattle markets. Were the next few weeks to be little more than basis convergence, it will offer those who are a little behind in marketing's to get caught up.  

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​Hogs:

​Hogs were mixed today.  Pork production continues to be elevated. Hence most likely why December is not soaring higher to meet the index.  A meeting in the middle looks as if could take place without too much flair.  ​

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Corn:  

​Corn and beans were higher and wheat was mixed between the exchanges.  I get the feeling a trading range is being created to mark time within before justification, or not, of USDA projections can be confirmed. While storage can create an issue, at present, you can't buy it any cheaper than today.  Soymeal is about $20.00 off the lows and back to levels where the first recommendations were made.  I continue to recommend buying soymeal in the contract month you will be taking delivery.  This is a sales solicitation.  ​

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Energy:

​Although energy did trade some lower today, it was higher at the close.  A few days of sideways trading won't be out of the question, but lower trading is still believed in progress.  ​​​​

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Bonds:

​Bonds sold off from the highs made on Friday, but by the close, bonds were higher on the day still.  Bonds are moving higher and the previous trade recommendations are cancelled.  I will be looking for a place to buy, but may have missed this particular opportunity.  ​​​​

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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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