“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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9/6/2024

Live Cattle:

In my opinion, a large portion of the losses caused by the news of Anthrax outbreak at the end of the week merely accelerated the decline already in place, but did not initiate it.  That was done back in February of this year in the futures market when it was believed the agenda would eventually push beef production to even with 2023.  It did.  The index was just a little slower and topped at the end of July, for which the time frame in between narrowed basis significantly.  While there was a mild correction back from the previous selling last week, seemingly it only offered bulls a chance to come up for air. Upon learning of the issues with the Anthrax, bears pushed bulls out and, in most cases, made either a new contract low this week, or new contract low close in the feeder cattle market. Prior to the Anthrax, cattle markets were already in a bear market with multiple comments having been made concerning the current economic status and that potentially weakening.  There was some interest in the markets this week with both fats and feeders having gained open interest for the week.  When discussing the sun not shining on the same dog's a** all the time, you could not ask for as much of a drastic change as has taken place in the feeder market. What was once the best friend a backgrounder could ever have, has swapped sides to the cattle feeder. At Friday's close, a cattle feeder had the opportunity to buy this example of a $226.00 January call and sell the $216.00 put for an approximate premium of $3.00 that would produce a maximum purchase price of $229.00, $13.18 under Friday's index reading with a minimum purchase price potential at $219.19, $23.18 under Friday's index reading.  Were the index to decline to the December of '23 low, you would be buying feeder cattle within $4.00 of that low.  These are fully marginable positions with unlimited risk and reward above and below the strike prices.  This is an example of a sales solicitation.  Now that you can see clearly how the detriment to one entity can become the benefit of the other, and vice versa, it should help you to make more informed decisions going forward on how, when, and where you market and procure inventory.   The days of buying when you want and selling when you want are gone.  The industry is weeding out inefficient producers in leaps and bounds.  The lateral change in production will continue to solidify further vertical integration with instances like the past couple of months helping to achieve such.  Throwing in a little insult to injury is the beef/dairy cross humming in the back ground, with the efficiency of seemingly changing how beef is produced. An unintended consequence of this has been milk prices trading higher.  The two revenue streams towards dairies are seemingly making them look very healthy.    

Corn, beans and wheat have seemingly had a dead cat bounce.  Corn and beans are in a lull for which the great expectations of yield by USDA and private forecasters have yet to be met with real time yields off the combine.  Were traders to only focus on the US, I would anticipate a significant sideways range to form with current contract low and this week's high, maybe the range.  The Ukraine is experiencing significant drought and South America moisture.  I would focus more on outside the US production for clues as to direction and if nothing significant materializes, then the sideways range will most likely extend to the end of the year. 

Energy continues to be on the forefront of the economic weakness.  New lows again today in crude with diesel fuel reaching a level this week for which I made the recommendation to top off farm tanks or book fall harvest needs.  This is a sales solicitation.  This is not to say that I think energy is going to trade higher, but another $.10 to $.15 lower on the futures may not mean much to you or your fuel provider when booking.  Carry has come back in as well, so waiting another month may not get you any cheaper fuel if prices don't move lower by more than the carry.  Equities have softened.  Imagine how difficult it will be for companies to equal earnings made when consumers were flush with 3.5 trillion dollars of government money strown to the wind.  Of course, every company did well.  Today though, with the money drying up, I think it will be more than difficult for companies to reach previous earnings, or potentially even expectations.  Bonds were higher as evidence of needing a little relief from the rate hikes continues to be noticed. With the massive recalculations of employment being missed by the tune of 818,000, I have no reservation at all in believing that current economic numbers are masking a severe undertow felt by consumers for which evidence of is starting to emerge.  I have no doubts we are in uncharted waters. 

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.