“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​11/7/2024

Live Cattle:​ 

Although the open interest increases have subsided a little, the interest in the market is increasing significantly.  With recognition of the situation the new long futures positions are in for live cattle, it's almost like knowing what their hand is.  This leaves two very distinct possibilities.  One is that they could defend their position by buying more, in hopes of spooking shorts to cover. While this may sound heroic, I think the funds realize that were they to push basis to even, there would be an onslaught of change in ownership of cattle. Second would be that they capitulate to trade another day.  At this point, I think we are all holding our breaths with knowledge of the fund and speculator position, and whether the consumer, grocer, packer, cattle feeder, backgrounder, and cow/calf operations are willing to pay higher.  With today's Fed move of lowering rates by another quarter, the bout of inflation is set to increase.  Do cattle and beef appreciate with, or are they hampered by?    

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Feeder Cattle:​

​Open interest in feeders remains stagnate.  With the onslaught of increased LRP business, they may not ever achieve much higher of an open interest.  The LRP took out a lot of producers that did not like futures, margin calls, or paying full option premiums, so the LRP became some producers derivative of choice. Who doesn't love a good subsidy?  Nonetheless, this does not make feeder cattle prices go higher or lower.  What does?  The appetite of the cattle feeder.  So far, their appetite has been extremely consistent in price paid.  Futures offer some discounts into the future, but seemingly there is little interest in owning feeder cattle cheaper in the future.  Similarly to the fats, were futures traders to push contract months to levels of the index, I think producers would let them have everything they have.  This is not getting out of the business, this is staying in business by marketing inventory at highs, equal to cash, than at discounts.  However, at the moment, futures traders have been reluctant to offer such. With the same amount of beef production year over year and cattle on feed, I don't see much transpiring without some direction given by the consumer. ​

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​Hogs:

Hogs were higher today, except for December.  The index was up $.45 at $90.24.  Futures traders appear reluctant to relinquish long positions, but more interesting is the wide basis to December and divergence continues.  Therefore, either the cash drops precipitously, futures rise rapidly, or they meet in the middle.  ​

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Corn:  

Soybean oil and corn continue to move higher.  I believe in response to the rising energy prices. ​Beans were sharply higher with wheat lower, most likely due to improved mid-west moisture. Cattle feeders will be staring at an issue if energy prices move to the extent anticipated.  The spread between December and July continues to be favorable towards ownership of the July, due to the lower carry.  I recommend buying the July $4.60 corn calls.  This is a sales solicitation.  With there seemingly little to do with basis at the moment, I recommend you fix price.  If prices move lower, basis may as well.  If prices move higher, I couldn't imagine a farmer decreasing basis.  Therefore, at least half of your issues are resolved with the ownership of the July $4.60 corn calls. ​​​​​

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Energy:

​Energy ended the day higher, but not sharply.  Traders were able to make new highs from the 10/29 low.  That 10/29 low was significant in that it completed the huge gap down move from Sunday evening, with the new highs voiding any bearish aspect that gap produced at that time. As well, that 10/29 low is expected to be the low on the weekly charts that completed a 2 year long sideways correction of the rally from 2020 to 2022.  I expect energy prices to move sharply higher, even with the knowledge of "drill baby drill".  One, Trump is not president for 2 more months, two, the US doesn't have a president seemingly at the moment, and when or if the drilling starts, it could take a few months before new oil is refined with increased refining capacity. In the interim, there is war going on in Europe and the middle-east for which great usage of energy is needed to kill people in mass.  If this wasn't enough, the Fed lowered interest rates today, producing another round of stimulus, leading me to expect the bout of inflation to continue. ​

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Bonds:

​Bonds are higher today.  The blow out bottom made on Wednesday is believed a point for which to make a stand.  With the Fed having lowered rates again, this bout of inflation could cause the recession or depression many have expected.  The most interesting aspect will be whether cattle and beef appreciate with this bout of inflation, or is the consumer impacted to a point in which consumption or willingness to pay weakens.  ​​​​​​​​​​

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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.