Shootin' the Bull about consequences

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​

9/12/2024

Live Cattle:​

The October and December contract months are believed to be at risk the most from cattle feeders having paid an exceptionally high price for the incoming feeder steer.  With losses over $220.00 per head from last week, this week will most likely only be worse, simply due to cash no higher and most likely a higher price for the feeder steer was paid.  It won't be until sometime in or after December before the highest priced feeder cattle start to slaughter.  Hence were fat prices to soften further, it will only go to exaggerate an already position.  Nonetheless, since there is nothing that can be done now about what you paid for them, consider how you keep from losing any more on them than you have to.  Basis today narrowed further.  December is very close to having narrowed basis by enough to consider laying off some risk.  While I may be totally wrong, but I just don't foresee the time frame coming for which a futures traders would produce premium for which the cattle feeder could then use to market inventory at the higher price of futures.  I recommend you use this week's higher trading to plan your defense against a potential decline.  This is a sales solicitation.  While I would like to see basis a little tighter, I am unsure of this opportunity presenting much more.  If you need help, call us and we can show you what we recommend.  Then with more knowledge of what your marketing aspects are, the more informed decision we believe you can make.  ​​​

​

Feeder Cattle:​

The Moore Research seasonality's differ by enough to notice it between fat cattle and feeder cattle.  Fats tend to jockey back and forth after mid-September, with feeder cattle starting to take on a more definitive seasonality of trading lower into December.  The month of October tends to be sideways.  Nonetheless, this rally has narrowed what was once and exceptionally wide positive basis. The lower print today of the index and higher trading of futures, narrows it pretty quickly for one day.  So, you have some decisions to make.  Is this a narrow enough of a basis for you to feel comfortable marketing into?  What are the consequences of you executing your hedging plan at this width of basis?  Remember that we can help you calculate what the end result of your hedge will be, regardless of market action in the interim, or the last trading day.  To do such, it would be helpful for you to know at what the average spread between the cattle where you market and the CME index.  While we do believe all ships rise and fall with the tide, and that without a doubt the futures will converge to cash, simply due to the cash settlement of futures, but we know that from one day to the next, buyers in your area may not necessarily want to bid even with the board.  Therefore, knowing your local basis will help you.  As in, if the index is up $10.00 from today to the time you market, are cattle in your area, of the same weight class, $10.00 higher as well.  Even if not the same price, both rose $10.00.  ​

​

Back to hedging this market.  Put pencil to paper, figure out when you can market as close to the expiration of a futures contract as possible, the number of head to be marketed, and then consider the outcome of your actions were the market to be $20.00 higher or lower on sale day.  If you can live with the consequences of your actions, then I'll be waiting for the orders. This is a sales solicitation.  

​

​Hogs:

​Hogs were lower.  The lean hog index is down $.10 at $85.46.

​

Corn:  

While I doubt the computers overheated, but I'll bet the room was hot where they are stored.  Grain trading after the seemingly lackluster WASDE report, was volatile, if not violent.  Nonetheless, corn and beans closed higher on the day.  I don't think much of the bean trading was due to US crop.  The worsening drought in South America is on the radar and with still very poor infrastructure, I could see where a bad year could turn into a terrible year. As well, in talking with Darin Newsom from Bar Chart this week, his comments of recently having been privy to a conference in which it was noted that Brazil has intentions of doubling the size of their production within 10 years, set me back a little. In all honesty, it makes perfect sense.  More people to feed in the world, and fewer working, leads to having to have a lot of cheap food.  The size of this year's crop suggests that it will be difficult to spur the type of demand needed to consume so much.  As well, it appears that a large portion of the crop remains unpriced, leading some to "have" to market when needed, instead of marketing when most appropriate.  This helps keep with the same aspect to cattle feeders. That being, going hand to mouth and filling every nook and cranny with corn to store for a later date.  It may not get much more expensive, but could go into a sideways trading range until at least after some harvest takes place. ​​

​

Energy:

Energy rallied again today. The down trend remains very much intact and I look for a resumption of the down trend soon.  Today's price action ​​​​could well be the top of this minor correction.  If so, I expect new contract lows to be made with targets to or under $60.00.  Diesel fuel is up a little over $.06 the past two days.  I think it possible it softens further, but these small price fluctuations may not make any difference to the fuel provider you use. 

​​

Bonds:

​Bonds were lower.  I think a great deal of "buy the rumor, sell the fact" is taking place.  Bonds have rallied in anticipation of the Fed's expectations to lower rates this month.  I think this is well into the market. What will be the most interesting will be to see if it spurs another round of inflation.  The intentions of lowering rates is to stimulate.  There are seemingly a great deal of cross winds blowing and I hold close the belief we are in uncharted waters.  Worse, it appears that neither of those running for Captain of the ship are qualified to take on such a mass disarray of issues at hand. Both seemingly will do whatever it takes to remain popular.  That appears to be time frame of history and economics we are in.  We tend to vote for the most popular and not the most qualified.  I watched the entire debate and could not tell you one item either chose to elaborate on to fix immigration, class division, or much of anything else. I think in order to remain popular, both will almost have to inflate to keep from going into a massive recession or worse depression. ​​​​

​

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. 

Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.