“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​11/13/2024

Live Cattle:​ 

It's getting even more interesting.  Open interest declined again on Tuesday's trade, pretty much cutting in half the gains seen starting on October 21.  Now one has to wonder, who owns what and where?  Is there the possibility funds were able to offset positions on this small rally, leaving long positions in weaker financial hands?  We know who should be short and why, but not as sure why some thinking running the price up for ownership is going to necessarily be profitable.  A few things to consider about what we know.  We know that only cattlemen and packers buy the physical inventory.  There is no outside influence buying or selling physical cattle except those that can make or take delivery of. For every cattle purchased today, one is in hopes of them being higher in the future.  Less than 7 months ago, with the ability to buy cattle with premiums on futures, there was very little risk.  The risk assumed would have been selling them early and not participating on further advancement in price. But the risk of loss was minimal, if not already producing a profit when hedging in a negative basis.  Those fundamentals are starkly different today where anything bought today can't be hedged at a premium or even in some cases.  Therefore, the risk now shifts to the market "having" to go higher for anyone to profit since selling them in the future will be at a discount.  The flip side of this is that shorts already have a head start, with prices near historical high and a new presidential administration hellbent on lowering inflation.  ​

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Feeder Cattle:​

Since only cattle feeders tend to buy feeder cattle, it narrows this sector down even more.  Here is where the most change in basis has taken place for which is a benefit to cattle feeders, but no longer backgrounders.  Backgrounders are faced with a similar issue in that feeder cattle futures remain discount to cash with calf and stocker prices having run up significantly, due to the most recent rains in the wheat belt.  So, right off the bat, your margins have narrowed sharply the past two weeks with still a fairly wide positive basis to attempt to lay off risk. The hearsay I am hearing is cattlemen are bullish again because there are not any more cattle and a belief that expansion in '25 will create a shortage.  They may, but they will be doing so with 4 years ahead of them in an administration that is hellbent on lowering inflation.  As well, some think the October on feed number will exceed 12 million head.  While there is no doubt the US may run out of cattle, never be able to expand, or send cattle/beef prices higher than anyone could afford, but out to March of '25, there is going to be ample beef production, and until expansion starts, heifers are going to continue to be placed.   ​​

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The feeder cattle index traded under $249.09 today to $249.02.  This overlaps the previous low of $249.09 from which the move to current high of $251.20 started.  The oscillator is on the verge of going below the zero line.  Note the previous crossings on the chart below.  This shift in crossing the zero line tends to lead to an acceleration in the main direction.  In this case, I believe down.  A trade of the index above $251.20 will lead me to rethink positions.  Until then, I recommend you maintain all short hedges with no delays in offsetting new purchases as it appears your margins are shrinking and you are marketing into a weaker time frame when viewed by spring futures prices.   

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​Hogs:

​Hogs were mixed  The index was down $.14 at $89.88.​

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Corn:  

​All lower again today.  Trump has been busy getting his ducks in a row and they are not appearing to be bullish ducks. 

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Energy:

​Again, energy traded lower today, but was able to recoup to plus on the day at the close.  Traders pushed crude down to the up trend line.  With still two days of trading left, the weekly close only chart pattern is crucial.  A close of the weekly chart above $69.49 at Friday's close will keep the chart pattern applicable.  I have to admit that seeing prices taper off this week, and the knowledge Trump wants to lower inflation, I felt a little uneasy.  After reading this article HERE, it suggested I wasn't too off base to begin with. With December and January not much different in price, there shouldn't be much change of the weekly chart when December expires next week.  Again, I think that energy could be the outlier commodity that bucks the lower inflation agenda. In all honesty, nothing would curtail inflation any quicker than higher fuel prices.  While not desired, potentially a necessity to go along with higher interest rates, making every new purchase on credit more expensive, and the US dollar discouraging exports, keeping more product available for domestic consumption or production. ​​

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Bonds:

​Bonds are lower.  The CPI showed inflation continuing.  Every new item bought will be at the second highest retail interest rate since the low on October of '23, or back to March of ​​​​​​​​​​​'10.  The best way to cure high prices, is with higher prices. 

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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.