“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
1/27/2024
Live Cattle:
Working capital is being strained, whether in a hedge, production costs, or interest rates, everything to produce a pound of beef is higher than just a few weeks ago. In the attempt to achieve another level of vertical integration, the increased out put of working capital is expected to help accomplish this. Whether a continually higher price, or an unforeseen event that turns prices lower, basis spreads are such that only discounts are available in the future to make sales against. There is too much processing and production capacity for the number of animals available. Adjustments of this situation are expected to produce significant volatility.
Feeder Cattle:
Whatever is short of inventory today, is expected to be available this spring. Whether opening the border to Mexico, or bringing in cattle off wheat pastures, the spring is expected to make available just about the same number of cattle as what appears the market to have been short of in the past three months. As there have seemingly been some alterations in metrics of profitability, were are simply going to have to see if those changes in metrics are profitable, or potentially just an anomaly created by fall rains producing wheat, and Mexican border issue, both of which will come to a resolve with cattle going to come off wheat and great expectations of the border opening.
Class III Milk:
I have found no expectations for a reversal of cows being bred for dairy replacement over the beef/dairy cross. There is no reason to due to the now two lines of revenue that have increased significantly. Milk prices have remained higher, with expectations of continuing so, and the beef/dairy cross has increased the value of the carcass to equal of a beef cow. So, I see no changes in this industry. I continue to expect milk to trade higher with last weeks sharp declines believed as opportunities to own milk or call options on milk.
Corn:
Corn and beans were soft today. A trade of July Corn to $4.85 will be viewed as an opportunity to own call options for feed needs this summer. For grain farmers, I recommend buying the December corn calls and November soybean calls at a strike price you would be willing to market cash grain. Hence, were objectives met, you can sell the cash market and keep the limited risk derivative for potential further gains.
Energy:
Energy has taken a deep breath with expectations of nearing a bottom of the first correction we've seen since the price started higher. Excessive volatility is expected with anticipation of higher prices.
Bonds:
Bonds are a little firmer today with the S&P and Nasdaq indices sharply lower. I anticipate bonds to move a little higher. I don't expect a Fed cut and I don't expect rates to come down anytime soon that would spur stimulation. China remains on the front burner for stimulation, but unsure when or if it takes off.
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