Shootin' the Bull about cattle feeders delima

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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2/15/2024

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Live Cattle:

Futures traders were active today, pushing prices higher and lower before closing higher in the front end and not as much in the back end.  Today is the first day I have seen in 3 weeks that benefited the cattle feeder.  The question I pose is, do cattle feeders form a consortium of some kind with intentions to not bid as high for incoming inventory, or is this the time frame for which a few, bid feeders to the moon, and suffer the losses in return for a larger share of the market down the road?  I continue to think of Walmart and the achievements as a company they have made in putting competition out of business. As the worlds largest grocery store, I think it more likely than not, they are in a position to garner more market share.  They can achieve this by out bidding all others, or run the price so high of feeder cattle, the risks of loss become more enormous than already.  I recommend cattle feeders discuss this and see how they may avoid the seemingly purveying circumstances.  As there is a belief our economy is becoming a hamburger, instead of steak, economy, think again of the amount of money it takes to produce a pound of beef.  If a hamburger economy is found to be true, fat cattle prices may be about $20.00 too high, even with great expectations of fewer cattle to slaughter this year. 

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Feeder Cattle:

Backgrounders profit's are believed hinged on the two factors mentioned above.  Those being, is there a way cattle feeders can impact the price paid to lower the spreads between starting feeder and finished fat, or will a few attempt to create a bidding war for which only the strongest will survive.  My best guess is that all of them need some relief and this spring may be the opportunity to get some.  If able to achieve an even to positive basis for this springs cattle, it may produce a narrow enough basis spread that cattle feeders could actually hedge against rising prices for this fall.  December lows of feeder cattle produced a positive basis in most contract months.  While I don't expect that again, I do believe further convergence of basis will take place this spring, potentially producing opportunities for cattle feeders to hedge incoming inventory with an improved basis.  I believe backgrounders should pay close attention to this as it leads me to anticipate further contraction in futures prices, leading to convergence of basis. When attempting to live with the consequences of your marketing actions, I ask you to consider this while making those decisions.  How much risk do you wish to assume versus how much risk you wish someone else to assume, and what are you willing to pay for that service?  Once these are answered, your marketing decision becomes action, and action leads to consequences, and are you able to live with those.  I anticipate further consolidation in feeder cattle futures with a feeder cattle index back tracking to approximately the $135.00.  

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Hogs:

The trap apparently was the outstanding pork export that potentially others knew before the opening on Wednesday morning.  Regardless, the difference between what I think they should be doing, and are doing, is too wide for me to trade.  

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Corn:

Farmers are making sales under duress, and it is undesirable to re-own the crop due to premium of carry and option premium if wanting to re-own in that manner.  Regardless, all you are doing is selling low and buying high.  Don't do it.  If you think corn is going to go higher, then either don't sell it, or buy it today, where it is the cheapest. Beans are quickly moving in the same direction.  I expect corn to drop another $.20 to $.40 and beans a dollar plus.  What will happen when they do find a bottom? Probably go splat and stay there until this year's crop is started to be consumed next year and we see if next year the farmer plants less, or there is some surge in demand.  If there is anything to do, it would be for poultry and pork producers securing soybean meal.  The carry is mixed, allowing for purchases equal to or less than spot month.  Call options on bean meal are urged to be considered if an end user.  

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Energy:

No end to the volatility in energy trading.  Although mostly higher, the spread between gasoline and diesel fuel have begun to narrow sharply.  This is primarily due to gasoline gaining on diesel fuel.  As refining capacity is anticipated to increase, supplies of both gasoline and diesel fuel are expected to increase.  

Bonds:

Bonds were higher, but gave back the lions share of before the close.  I am still perplexed on the bonds and believe that maybe when I missed the aspects of this bout of inflation, potentially, we could already be subsiding from and give the bonds some room to trade higher.  I recommend taking another stab at being long bonds and recommend buying June bonds when risk can be managed with sell stop to exit only at $117'25.  This is a sales solicitation.  If I can get a better reading tonight or tomorrow, I will post a more definitive buy price. 

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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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