Shootin' the Bull about conducting business

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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9/19/2024

Live Cattle:​

I think it time to conduct some business.  Regardless of opinion of market direction, there are issues at hand that need to be addressed, more so than the next most probable move.  December futures are $7.65 off the low made on the 9th.  They are within a dollar of last weeks established cash trade. The $181.00 put option is approximately $4.30.  Of the $7.65 gain, I believe it necessary to spend $4.30 of this gain to own this at the money call and solidify a higher minimum sale floor than has been available since August 15th.  I recommend you buy the at the money put option for the December and or February contract.  This is a sales solicitation.  A second part of this equation could possibly be to sell an out of the money call option to reduce the initial premium paid.  I will leave this part of the equation open until either another $3.00 can be put on futures, or Friday's COF report suggests to do otherwise.  Again, this recommendation has little to do with direction.  I don't see the consumer willing to pay or consume more beef at these price levels, but a lower placement figure on Friday will have minds thinking that the shortage of cattle can be more easily recognized now.  Why now, and not months ago?  I think imported cattle from Mexico and Canada have been what has kept placements from being the 97% to 98% as most months have been guessed.  The imports are most likely the 2% to 3% unexpected placements that pushed levels to 100% and above for most of this year.  Going forward, I think it will be more difficult for imported live animals to make up the percentages of placements we have seen this year.   

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Feeder Cattle:​

I think it time to conduct business in the feeder cattle markets.   With the futures trader having found some reason to bid futures to the levels of the index, I think you have to take advantage of this change in basis.  Pick the month you are going to sell cattle in as close to the expiration of a futures contract.  When figuring out strikes, attempt to use a $10.00 out of the money call, as close to, or above $250.00 as possible.  Then, consider how much risk you wish to assume, how much you wish the market to assume, and buy the put option at the strike price where option premium is suitable to you.  

Example only:  November feeders closed around $241.30.  Buy the $241.00 put and sell the $251.00 call for an approximate premium of $3.45.  This produces a minimum sale floor of $237.55, $6.87 below the current index reading, and a maximum sale price of $247.55, $3.13 above the index.  At the maximum sale price, you will be $14.33 from the index high.  At the minimum sale floor, you will be $11.28 above the 9/9 low made at $226.27.   This is an example of a sales solicitation.  

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This has no bearing on whether I think prices will move higher or lower.  It has everything to do with managing inherent risk associated with livestock production.  If you have not liked your marketing capabilities in the past, then change them.  At the very least you are marketing in an up market with leeway to the upside, suggesting that when you can't make anymore money due to the constriction of the hedge, you will at least be at the highs and not the lows if getting the opportunity to market at the higher level. This is not an easy recommendation to make due to the potential of what the placement number could reflect.  However, I remain much more concerned for the consumer, as the rate cut won't do anything to help them when it comes to buying next weeks groceries or utility bills.  The Fed's action is believed going to produce a push and pull effect with inflation still running at a higher level than desired, yet now stimulating the economy.  Most commodities appreciated today from the Fed's move, baring grains.  That looks like inflation to me. 

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​Hogs:

​Hogs were higher with basis being converged.  The lean hog index was unchanged today at $84.22.  Traders are expected to continue to narrow the basis spreads. 

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Corn:  

​Corn and wheat were weak with beans soft.  I expect corn to form a sideways range with a good idea the parameters of have already been made.  The wheat is believed making a wave 2 or B correction and I will be looking for a place to buy wheat.  I remain long beans and continue to recommend owning March or May with a sell stop to exit only at $10.33 March and $10.49 May.  This is a sales solicitation.  ​

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Energy:

​Energy was higher, along with most other commodities.  Whether pagers blowing up, or the Fed's action, the world is in a lot of turmoil.  Almost like uncharted waters.  Hence, most likely why energy is still firm.  I continue to anticipate energy to trade lower. 

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Bonds:

​Bonds are lower again today.  It may be a week or two before one can determine whether the rates cuts were needed to stave off recession, or whether they will fuel the next round inflation.  I think regardless of which candidate is chosen, both will want to inflate, as to not be the ones in office accused of creating a recession, or worse, depression. Wave 2 of deflation is still believed in progress, but when you consider that barring a few commodities having moved lower, not much else in the necessity world of the consumer has seen any price reduction.  If you have a definitive thought on whether more inflation is coming or recession, due to the Fed's action, I would like to hear it.  All informative comments with a desire to achieve a correct answer are always welcome. ​​​​​​

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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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