Shootin' the Bull about laying blame

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

11/29/2023

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Live Cattle:

Traders allowed the dust to settle a little today.  The blaming of others, and excuses for not managing risk, continues to be rampant.  Regardless of which fallacy you subscribe to, and there are a lot, this is a market and markets can be irrational, and remain that way for longer than one can remain solvent.

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Packers are urged to own the June and August fat cattle, due to anticipation of fewer placements.  This is a sales solicitation.  I am less worried about the February and April time frames due to increased placements this fall and expectations of more cows coming to market in the first quarter. Hence, there should be plenty of beef to go around up to this spring.  If first quarter placements are light, then that should help to bolster the June and August fat contracts.  

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I think wave A down is complete.  Next most probable move would be a major B wave rally that may retrace 50% to 70% of the A wave decline.  This B wave will be anticipated to unfold in a 3 wave pattern.  The swapping of basis and still short supply issues has opened new doors of opportunity.  I recommend cattle feeders buy the at the money call options and sell $10.00 to $15.00 out of the money puts to hedge incoming inventory.  If prices move higher, you can use any premium collected to offset the higher cash price.  If prices move lower, you can buy the physical inventory at the strike level you sold the put option. 

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I used this same strategy to help backgrounders hedge the risk all this year, except buying the at the money put and selling the out of the money call.  Yes, clients did miss out on anything above the basis spread they captured, but then again, they missed a significant portion of the most recent decline.  Be willing to buy cattle at the end of the contract month you are choosing, in order to achieve full convergence of basis.  As well, there is some potential that traders will once again spread basis out negatively, providing a good environment to procure incoming inventory.   

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Feeder Cattle:

We work very closely with lenders to help them manage the risk their clients assume.  If your clients need help, call us. 

Backgrounders are going to have the tough row to hoe going forward.  The margins between calves and feeder cattle has shrank significantly.  I recommend using the most recent decline to begin procuring inventory and not lay off the risk just yet.  The decline in prices is going to help decrease the risk.  Some risk assumption is going to be required until futures move higher.  If there is some margin, and no risk desired taken, then one could just own the put option with expectations to sell a put or call later in time to help lower the initial premium paid. Long way around the barn, but I think cattle bought sooner, than later, will have an opportunity to be marketed at higher levels in the future, whether marketing with cash or futures.  As well, I think the rally will only be a B wave rally, not exceed a new historical high, and by this time next year, feeder prices could be nearer $200.00 than the $300.00 most thought this year would bring. Quote for the day "I'm getting too old for this *hit"

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Corn:

March corn was able to close a whopping $.02&1/4 higher, after making a new contract low today.  Corn is believed having resumed its bear market.  Wheat is believed to have bottomed.  Whether long or short term, I do not know.  The last move down appears to have unfolded in a 5 wave manner.  When viewing with technical indicators, it appears a bottom is in place.  Beans were a tad firmer in the front end and a tad lower in the back.  I anticipate beans to move higher.  South America appears to be about 75% complete in planting.  Weather will continue to play a roll, but I think our weaker US dollar and the slight "risk on" environment will keep beans firm. 

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Energy:

Energy traders shook the tree a little, and seemingly few bulls fell out.  By days end, crude had set new highs for the day.  I anticipate energy to continue higher as the slight "risk on" environment continues.  Farm tanks should be dripping full and spring planting needs booked. 

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Bonds:

Bonds continued to move higher today.  The daily charts are shy on data, due to so few contract months traded, and all volume in spot month.  When viewing the weekly continuation, the last leg down started from around the 130'00 level.  This is where I would anticipate the current rally to return to. 

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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.