Shootin' the Bull about some soul searching

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​1/13/2024

Live Cattle:​

Some soul searching is believed going to take place at current price levels.  The supply issues of cattle are well known.  Agenda's that began two years ago, for which today we see only minor cuts in beef production from the 2022 high, will continue.  Those agenda's will most likely stay in place due to the dairy industry finding revenue streams beneficial, and imports a necessity.  A few weeks ago, I mentioned the dairy industry was short approximately 1 million head of dairy heifers.  When I bring this up to beef producers, they immediately imagine the dairy industry abandoning the beef/dairy cross to produce more milking cows.  Ah, but not so fast.  As the beef cattle industry began falling short of inventory, the efficiency of the beef/dairy cross was coming into its own.  The new revenue streams are faster than milking cows and with two positive factors at play, I see little reason for a change.  What are those two positive factors?  One, is increased revenue from higher milk prices, and the other, the higher revenue of the beef/dairy calf.  Why would someone want to disrupt this?  They don't, so more beef/dairy cross should be anticipated and no increase in milking cows to any extent.  

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If you have an interest in class III milk futures, let me know and we can help.  Class III is currently in an inverted carry with back months under $20.00 with historical highs between $25.00 and $26.00.  

​Feeder Cattle:​

​Cattle feeders had to find relief somewhere. Not bidding up for feeder steers is about the only thing in their control, and it seems to have been their market of preference. Previous recommendations to fix some variable input costs are of benefit now that prices have risen further.  If having hedged on the way up in feeder cattle marketing's, I think it possible one could dodge a great deal of adverse price fluctuation.   Expectations of significant volatility is on the rise as participants have increased their financial exposure within the cattle market, whether with physical inventory, futures, or options. As fundamentals shift, so to will positions, and there are lot of them.  This has been a historical run in cattle prices, with great acknowledgement of the reason for.  As commodities are subject to supply and demand factors, and we see consistently the tenacity of the American producer to meet demands, it is being done today with elevated beef production.  If, is the biggest word in the human vocabulary. If consumer demand falls, beef production is elevated to levels for which consumers were spending previously, and able to spend at those levels due to excessive government spending.  If spending levels are curtailed, beef production is expected to catch up to demand quickly.  Regardless of whether the consumer can or can not continue to spend, note that this current bout of inflation, primarily commodity inflation, will impact the consumer more so than durable goods, housing or auto purchases.  Oh, and the deportation of potentially millions of illegal immigrants.    

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​​Hogs:

​Probably one of the strangest markets of where futures have consistently been on the rise while the index has done little or gone down.  Widening the already significant negative basis, futures traders are believing producers won't increase production and demand will continue or increase going forward.  I don't see either at the moment and don't even try to figure out why futures traders are adamant to keep basis spreads wide and negative.  From my perspective of attempting to market inventory, the highest price available for anytime frame to market hogs is in the future.  I fully understand the vertical integration of over 80% of pork production, but seemingly there is some advantage to trading basis in hogs for fixed price over a variable. 

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Corn:  

​The USDA missed the ​carry out by a pretty wide margin.  This has caused significant short covering in grains as all aspects were for a dollar or two lower in beans and under $4.00 for corn.  Not so today.  Having fixed some variable input costs when recommended is believed beneficial at this time. Corn is moving higher and expected to continue for a little while.  The wave count needs some additional waves and I would look for around the $5.25 area July to be resistance.  Soybean meal perked up today, helping to push last weeks recommendations into the good. I continue to believe end users of soymeal should buy at the money call options to help fix some variable feed costs. 

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New crop corn sales.  If you are looking to sell some new crop corn, then I recommend you sell the December call options are levels for which you would be willing to make cash sales.  If the call goes in the money, you bust the short call and market some cash grain at the same time.  You may or may not have lost a small amount of option premium, but will have gained the full spread before such.  If the price never reaches the short strike price, then you collect the premium.  This is a sales solicitation.  If you need help in exploring how you can collect premium while you wait for a price to be achieved, call us and we will be glad to help.  

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Energy:​​​​​​

​Nearer $80.00 than $60.00 now. Energy is moving higher.  Spot February is less than a dollar from the $80.00 level and less than $4.00 from contract high made in June of '22.  Diesel fuel is back over $2.50 with spot February about $.30 from it's contract high made in June of '22 as well.  Input costs are moving against cattle feeders and producers in general.  A 180 degree different administration is fixing to wield power for the next 4 years and just the stop or slowing of frivolous spending is expected to have significant impacts on markets.  We have already seen sharply higher interest rates, a very strong US dollar, and now rising commodity prices, potentially pressuring the equities market.  

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Bonds:

​Bonds continue to move lower as inflation is causing action to quell it.   China's woes continue and seemingly may not have the wherewithal to stage a come back at this time.  However, know that further Chinese stimulus will be lurking around the corner and most likely enacted if opportunity presents itself.  With some similarities to the US, it is over building that is causing a great deal of China's woes.  In the US, it is absolute lack of infrastructure to support the citizens and structures already in place.  Government spending on everything but, has left the US more vulnerable than many think. With a lot now being realized since the media blinders have come off, attempts to rebuild infrastructure will meet a lot of up hill battles, but most likely what to watch for.  ​

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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.