“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​11/19/2024

Live Cattle:​ 

​Futures traders have provided cattle feeders with a small amount of premium to work with into April.  While the futures trader is willing to assume your risk, at a premium, I recommend you allow them to. The February contract has moved up $3.67 from 11/11 to today's high and April $3.82.   The index has moved up $2.79 in the same time frame, suggesting that cattle feeders are able to squeeze in a little more profit margin than previously.  With the rambunctiousness of the feeder cattle futures trader, having run futures a little over $13.50 higher in the same time frame, cattle feeders no longer have the positive basis to work with.  Now, all weight categories are trading at or near historical highs, with little to no premiums or discounts in the future to work with.  With futures higher than cash, and an incoming administration working towards deflation, I recommend you consider how resilient cattle and beef prices will be towards a government reeling in inflation, versus the out going one that contributed to inflation.  

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Feeder Cattle:​

Futures traders are on the cusp of taking basis back to negative.  Backgrounders are urged to use this sharp, $10.00 narrowing of the basis in just 7 trading days.  The current purchases for wheat pasture cattle is a bit of a flurry, simply due to the availability just starting from two weeks ago. Stocking cattle on wheat is nothing new, but this year's later than usual stocking of is believed to have kept the index elevated, causing futures to rally, converging basis.  The flurry narrowed margins significantly to the index level, but with futures having rallied $13.50, one can at the very least offset inventory at a near equal level to the index.  The extent of the move in futures is an opportunity that was not expected.  I recommend you use the narrower basis spread to shift the risks you just assumed with the purchase of the lighter weights.  Now you own them with marketing them into the future the next step. Consider what you paid for them, your breakeven costs, and go to work shifting some of your newly acquired risk to a futures trader.   This is a sales solicitation.   ​

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​Hogs:

​Hogs were mostly weak with the lean hog index down $.78, at $88.49.  

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Corn:  

​Cattle feeders continue to fill pens with inventory only $8.20 less than all time historical high, or about 3%.  Filling pens with expensive cattle is a feat of concern all in itself.  Were something to arise this winter or spring that would impact input costs or narrow margins further, it would become more difficult to overcome the already high price of production. So, while corn is still cheap, I recommend buying the July $4.60 calls.  This is a sales solicitation.  The premium is approximately $.23 or $.03&1/4 per month to own corn at $4.60.  I recommend you calculate how the additional $.23 would impact your feeding margins if a loss, and then compare at $.20 increments higher into the future for savings.  ​

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Energy:

​Energy prices were mixed with crude and gasoline higher and diesel fuel a little lower.  I expect energy prices to move higher.  The January contract will wrap up the weekly chart this week as December expires on Wednesday.  At only a $.25 discount, it won't take much to push it to the December levels.  A close on the weekly chart above $71.78 will be viewed as a reversal to the upside.  I recommend topping off farm tanks, booking some fuel, forward contracting some fuel or buying call options on crude oil.  This is a sales solicitation.  Diesel fuel continues to jockey the carry around.  With the small inverted carry at the moment, end users should be able to book a string out to beyond planting.  So, when bargaining, know there is no premium going forward.  ​​​

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Bonds:

​Bond are a little firmer today, but recall this is after a new low from contract high was made on Monday.  So, I am not terribly excited about the bonds, but do believe they could continue to rise for a little while.  December will be interesting as so many are calling for another rate cut, with inflation still rising.  Don't forget, there has been no decline in inflation, only the rate of inflation has declined.  As in, prices are still going higher, just not as fast as previous.  Most commodity prices have begun to reflect the agenda of the incoming administration to lower inflation. I question how beef and cattle will continue to inflate with the incoming administrations attempt to deflate. ​

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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.