Shootin' the Bull about a lot of expectations.

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​1/31/2024

Live Cattle:​

In my opinion, I have no idea how tariffs will impact the price of commodities in jeopardy.  Of some interest is that the announcement was made on Friday, during market hours, with ample time to have traded the information. Seemingly, it did little to change the outcome of the day in cattle. The tiger trap continues to be built and then filled in.  The wide basis stance being created is exceptionally dangerous due to having to pay top dollar today, and selling at discount in the future.  This week saw an even greater divide in bulls and bears with some of the most bullish expectations I've heard yet.  After the over $55.00 rally in feeders, some contend there is still $50.00 more dollars to go.  Maybe, maybe not.  Bears continue to focus on elevated wheat pasture cattle coming available in March and early April, as well as the Mexican border being reopened.  Both would increase supplies of lighter weight and feeder cattle-class size animals.  Of the real issue though is demand.  Demand that has never been, nor would have ever been, were it not for the 6 trillion dollars doled out between 2020 and 2024, is what is believed to have stripped supply chains in multiple commodities.  Cocoa and Coffee are believed dealing with like supply chain situations that under "normal" demand cycles would have never achieved such price levels.  Beef demand, that was artificially created, along with untold millions provided to producers and processors to increase production capabilities, is believed caused by the 6 trillion dollar payout.  All of this is great, except no one thought to actually increase the supply while they were increasing the capabilities to handle them.  The demand drove prices to extents for which expansion seems foolish when so much money is being offered for cattle.  Expansion continues to be on the back burner of both the beef cattle and dairy cattle industries.  Dairies continue to sell milk at elevated levels, all the while producing a second income stream from the beef/dairy cross. It is unlikely they will change this format of production.  

Having seen Friday's inventory report, we did set a new low, but it appears minimal to the increased beef production and capabilities of.  With producers seemingly anxious to put as much weight as possible on to cattle, this difference of a little over 57,000 head may not be all that difficult to overcome with increased beef production.  Especially were consumers to be impacted in their discretionary spending habits. The bout of inflation continues with gold higher on the week, but energy a little lower.  Grains finished the week about unchanged with still hovering at the top end of the trading range.  Bonds continue to soften as inflation is believed hampering some, and will hamper more as the current administration attempts to reel in the overwhelming spending of the previous administration.  Energy remained soft this week.  The lower trading is believed beneficial to producers needing to fix some variable input costs.  

There is a strong Moore Research seasonality in front of us for February.  Prices tend to top the end of January, decline into February and rally into the second week of February.  From mid- February to the end of May, the seasonality of both fats and feeders is lower.  With an initial break having taken place, I will be looking for opportunities in the time frames suggested.  So, start looking at what you've bought recently, when you need to sell it, and begin this weekend laying out plans to market your inventory.  Sometime in the first two weeks of February, it will be viewed as an opportunity to lay off risk, whether at new highs, lower or equal to current high.  Note again that there were some extreme analyses posted this week of sharply higher prices to come, after an already stupendous rally, with some having buyer's remorse already.  The cattle industry is in the midst of a dynamic change for which management of extensive capital will be equal to, or more important than, the production of the cattle. Commodity funds have been noted as a significant portion of open interest.  I continue to believe that although trading through the day may influence the market, but fundamentals continue to be produced in the cash markets.  At this time, do not think that funds, or anyone else, are pushing this market.  Futures settles to cash; cash does not settle to futures.  Therefore, regardless of the influence of the day's trade, it takes human interaction of buying or selling the physical product that makes the futures market move.  Expectations of those moves is where some may get confused.  This is simply the convergence and divergence of basis.  Expectations can be made and traded upon, but sometimes what is expected doesn't materialize.  Hence this week's sharply lower futures trade may be in expectation of cash softening, but if cash does not soften, futures will move back to the level of cash. I expect a great deal more volatility with the President's tariff's, the differing opinions of market participants, and most likely, more inventory being made available to the market this spring, potentially impacting 3rd and 4th quarter fat cattle production.  Energy is expected higher along with grains.

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.