Shootin' the Bull about losing farm ground

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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2/14/2024

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Live Cattle:

Further evidence has been found on the contraction of farming and ranching from this story by the Wall Street Jr.  The amount of farms and ranches in the U.S. is falling, but operations are growing in size, according to the USDA's latest census of agriculture data. There were 1.9 million farms and ranches in 2022, down 7% from the department's previous census of 2017 numbers, with an average size of 463 acres, up 5%. Farmland comprised 39% of all U.S. land, down 2% compared with 2017. Family-owned and operated farms accounted for 95% of all U.S. farms and operated 84% of land in farms. (patrick.thomas@wsj.com)

With today's cattle feeder under immense financial pressure, and little relief in sight, it leads me to anticipate more consolidation in cattle feeding or further exploration of vertical integration.  Regardless of which, cattle feeders within vertical integration are beginning to feel the pressure from lower box beef trade.  With some privy to beef sales, and box beef prices declining, and feeder prices higher, it doesn't take long to see margins erode, even to the strongest of cattle feeders.  I think some have to be prepared for time frame in which those well prepared will outlast those not.  I expect carcass weights to have improved by this week with more Australian and New Zealand imports on their way.  Lastly, the on feed report next week is expected to be one of the lowest in history.  As well, February placements could be a record as well, except higher.  Hence, I believe that when the March on feed report is released, the average placements between January and February will be approximately 97% placed.  

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Feeder Cattle:

The trough sprung a leak.  Traders tried patching it up towards the close, but will have to see who comes for a drink on Thursday.  Cattle feeders have been under duress ever since losing the $300.00 per head profit to the $300.00 per head losses, that have continued, week after week.  With no better prospects of profit margin foreseen, someone has to take control.  Maybe the industry wants things out of control in order to revamp the industry towards more vertical integration and a larger foot print on the weekly slaughter.  Futures traders have either slowed their advance, or are being over powered by industry fundamentals. The large jump in open interest in the April feeder cattle futures is believed entities hedging the market.  Today's price action is seemingly follow through of that recognition.  I anticipate further consolidation within the triangular formation drawn from Gann fan lines.  The May contract below shows those lines.  I also anticipate basis to go positive out to the May contract.  The premiums of August and out may keep them from going positive, but they are anticipated to converge sharply towards the index.  If you were unable, or did not do anything on the way up, prices moving lower are anticipated to increase the costs of option premiums and potentially widen the spreads they can be traded.  The trough remains full, but leaks are being seen.  How full is your canteen?  

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Hogs:

Today's price action appears to be a well laid trap.  Again, my thoughts are that humans were negative, the computer traders may have simply laid to the sidelines, allowing the shorts to pile up.  When the trap was sprung, it was done so on the opening with the first minute producing 1/3 of the days range and all done by 10:20am.  Here is the story of this kind of trap.  John steps on the dock to eat his sandwich and drops a crumb of bread in the water.  He sees a fish come up and grab it.  The next day, John again goes out on the dock, tosses a few crumbs, and watch multiple fish fight over the bread.  At the end of the week, John walks out on the dock, drops a few crumbs and a hand grenade and has fish for weeks. Whether true on not, that trading story is much older than I am.  I found no rhyme or reason for hog to have moved the way they did.  Obviously, I remain wrong on hogs moving lower.   

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Corn:

Not here though.  The fundamentals are just too strong to spur a rally of any significance.  I anticipate further selling as farmers are needing to make some sales to prepare for this years crop, already going into the ground in south Texas.  Beans, corn, and wheat, all made new lows today.  I expect this to continue.  I expect March corn to trade under $4.00 and March beans under $11.00.  

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Energy:

Wild trading today in energy again.  Traders pushed the last short out with a new high today in this rally.  Neither the gasoline or diesel fuel made a new high today with crude.  I expect this to be a top in energy for the time being.  The sell off today appears justified as the lingering inflation continues to impact consumers and their discretionary spending habits towards fuel and groceries.   

Bonds:

Bonds made another new low today.  They were able to close plus on the day, but that may have been some profit taking, or less desire to sell at the lower price.  Seemingly, there are a great number of factors at play within our economy.  The subsidizing of some is seemingly keeping the inflation from subsiding, while those not privy to subsidies are being impacted disproportionately.  This has been noted more than once as the Fed has had to deal with excessive government spending, yet consumers seemingly very egregiously being impacted by inflation.  While not popular to admit, but this is believed keeping up an elevated rate of spending for those that don't have, creating more burden to those who do. Again, I understand not popular, but it is my opinion.    

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