“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
6/27/2024
Live Cattle:
Click to view “Nearing a Turning Point in Cattle”
Cattle feeders appear to be exposed to an over $10.00 positive basis with very little they can do about it. Futures traders are believed to be overly cautious of adding premium to futures. If just buying a put option, the spread widens to near $15.00 when considering basis plus premium of the option. All of this at a time when every aspect of the cattle and beef market is at historical highs. What’s worse is that there is seeming like there will be an increase in available inventory on some of the video sales, creating a very wide stance between the backgrounder selling at the high, and the cattle feeder having to buy at the high. This is one of the more interesting time frames of the cattle industry I’ve seen in a very long time. Were there to be elevated inventory to market on these video sales, the cattle feeder may be a little less aggressive in bids. The real issue lies within the beef, the price it is, and the consumer believed nearing the end of summer holiday’s when the 4th of July is over with. Any break lower in box beef would be expected to be met with lower offers from packers. So, with the increase in capital outlay at risk, a very wide positive basis, and a consumer still believed shifting in discretionary spending, I think risk is layered.
Feeder Cattle:
Lenders are believed to be holding their breath with prices this high and nearly 50% of this years inventory to be marketed in the upcoming video sales. Cattlemen appear unfazed by the higher price and as we all know that in an inflationary time frame, the price simply has to go higher to profit as margin is currently thin to nonexistent. I look at the dramatic sell off in wheat that occurred just as the Russian news of their poor crop hit the wires. It didn’t matter any more and wheat sold off $2.00 in one month. I think that if beef begins to break lower, it won’t matter how few of cattle, fed cattle, or any bovine out there, no one will want to be left holding historically high priced cattle in a no longer bull market.
More of the agenda is being recognized now with Denmark having placed a tax on cow methane emission. Along with Australia two years ago limiting the number of cattle per hector, this will soon creep into the US. With the increased imports, decreased exports, high retail beef prices, the dairy/beef cross now well recognized by the most ardent pessimist, and potential limiting factors towards production, any expansion now will be viewed as going to increase beef production that would drive down the price of beef and cattle of every size. When I heard the rumors of more cattle being placed into the video sales, it made me think about this time frame as one that some producers may see this as their opportunity to go out on top. The younger ones will have time to recoup from whatever damage is done in this price cycle, but the older ones won’t. Five years from now, today’s time frame will be believed written as a significant turning point in the cattle industry.
So, what do you do? You make a much more difficult decision than you have had to in the past 12 months, that being marketing without premium. For months on end, premium has been available via a negative basis. As that has been curtailed down to just a few dollars, it will be much more difficult making that hedging decision than with the previous premiums. I can tell you what to buy and sell, and potentially where to, but I can’t make you do anything. So, you’ve lost the premium of futures, most likely the futures trader, and within the next 6 weeks, most of the remainder of this year’s inventory will have been marketed. Backgrounders will have a like problem as to cattle feeders. Even though you will be selling your cattle at the highest price, if you replace them, even on the same day, they will be at the highest price. There is a lot to consider with so much change having been recognized. We can help, and we want to help, but you have to make the decision to call us.
Hogs:
Hogs were all lower with the index up $.07 at $89.92. The hogs and pigs report is construed as neutral.
Corn:
While the flooding has gained some attention, the lack of acres damaged known is keeping it from being an event. When the damage can be tallied in acres, and we see if there are any more or less acres planted, we’ll see then what the impact may be from the flooding. I continue to believe that every acre not damaged, is in much better shape. Interest in selling corn has risen as the price drops. This tends to be normal as farmers have to sell and maybe they want the lower price to keep from having to pay more taxes. I don’t know, but seemingly the actions by the Biden administration has kept enough money in the farmers pockets to keep them from making the necessary sales. Farmers have lost a lot of ground in the price of grain. Look at what wheat farmers are going through. As cattlemen of all kind are agricultural producers and agricultural production susceptible to adverse price fluctuation, consider the plight of the grain farmer and attempt to not make the same mistakes of neglecting marketing’s.
Energy:
Energy continues to be volatile and higher in price. I’m stumped to say the least, but I’m sure not seeing any relief from inflation from the inflation reduction act.
Bonds:
Bonds were higher today. Not by much and today’s data appeared to cause little price fluctuation. I expect bonds to trade higher as just about everything is being done to keep the consumer from spending. Were the government spending to subside just a fraction, I think it would expose a great deal of the divide I think is taking place. If not, then I continue to attempt to remain solvent while the markets appear irrational.
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.
On the date of publication, Chris Swift did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
