“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
2/6/2024
Live Cattle:
Futures traders continue to diverge basis. While every penny is needed to help stem the current losses, there is nothing to stem the continual bleeding caused by the spread between feeder cattle and fats. All eyes are on the cattle feeder. Seemingly, they are under significant pressure to reverse current losses, and stem the future losses that are projected. The stakes have never been higher as the only price of incoming feeder not above the historical high of the index is cash, and barely the March and April futures. Everything else looking into the future suggests cattle feeders need well into the $200.00's to break even, or a cost of gain under $.82 per pound. I remain unsure of either. Cattle feeders have nothing to hedge into for forward purchases. Futures traders have pushed the weight to the feeder cattle futures, leaving cattle feeders with not much to do but go hand to mouth. What will be interesting is whether the current spurt of enthusiasm is relayed in the cash markets.
Feeder Cattle:
Futures traders continue to push more premium on to contract months, already rich in premium. Regardless of what price level convergence of basis takes place, it will take place. If the cattle feeder bids them higher, then convergence will take place closer to the levels of futures. If they do not, futures will erode to the levels of the index. This year appears ripe for take overs and further vertical integration. The amount of working capital needed is soaring, and were the futures prices to be realized, even more will be needed. Along with attempting to wrangle the costs of production, if you use risk management, the need for more capital grows exponentially. Lenders are urged to be aware of this and help clients manage the margin requirements it will take to allow for full convergence of basis. Every day will be a realization of whether you can live with your marketing decisions or not. When basis diverges, it is a tough pill to swallow. When it converges, you tend to sigh in relief. That is the wrong way to go about this. You hope convergence of basis takes place at the highest level of the futures contract, especially if hedged. It doesn't' matter if you are not using risk management, but everything if you are. The basis spread, or any leeway produced from a fence options strategy is all you are attempting to gain. There is no further upside potential, or downside losses once the hedge is put in place. From that point forward, it again, becomes living with the marketing decisions you make. Note that some of the excitement is coming from producers bidding higher for the lighter weight cattle that won't fit into the feeder cattle index. Those buying feeder cattle, to place on feed, are seemingly at little less aggressive, knowing how poor their margins are. Backgrounders have a great deal of leeway, not only from calves to feeder cattle, but the futures premiums offering much more. So, know the boat is weighted heavily with high priced feeder cattle futures, that convergence may or may not take place at the levels futures represents. Might not be a bad time to look for a life jacket.
Hogs:
Hogs were lower today. Whether topped or not, it is still too early. I remain unable to find any source of why the false breakout to the downside materialized. Nonetheless, June hogs are anticipated to trade lower, along with the lean hog index.
Corn:
Grains and oilseeds are in a bear market. Soybeans are prone to widen the carry. As corn is near full carry, and wheat hot on its heels, the beans appear prone to do the same thing. This leads me to anticipate some significant selling in beans. The $12 handle is teetering every day. I anticipate beans to drop a dollar in quick fashion.
Energy:
Energy trading was volatile today. A lot of very small moves up and down all day with minor gains by the close. I believe my wave count to be correct. That being, a major wave A complete, a major wave B believed complete, and a major wave C anticipated to trade sharply lower.
Bonds:
Bonds firmed today after traders cleaned the slate of bulls. I am at a loss. The crumbling social aspects, disregard of law, and rampant incompetency of all elected officials, leaves me wondering "what is in charge", not who.
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.
On the date of publication, Chris Swift did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Disclosure Policy here.
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