Shootin' the Bull about feeder basis going positive?

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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7/8/2024

Live Cattle:

Futures traders didn't have a great deal to go by this morning, so the volatility was immense at the start today.  I expect this volatility to continue as the industry sorts out its supply issues.  Demand, or lack of supply, is keeping box prices moving higher.  Consumers coming back from the July 4 holiday are expected to go into conservative mode.  Gasoline prices were no better today and the recent jump in prices just adds insult to injury in this inflationary environment.  Open interest continues to increase.  I think this is correct as those needing cattle are able to purchase such in the future at a discount.  Those selling cattle continue to face a harsh $10.00 positive basis for which it is believed short hedging is taking place to keep the spread from widening further.  Once, again, it appears the cattle feeding sector of the industry has the weight of the entire industry upon its shoulders.  

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Feeder Cattle:

​Futures traders continue to be no friend to the industry, especially the cattle feeder.  At the open this morning, feeder cattle futures were sharply higher than fat futures. By the close, the difference was pretty much unchanged, which is no help to the cattle feeder.  Backgrounders saw an enormous benefit today with the index up $3.21 and futures down over $2.00.  Today alone is more than a $5.00 swing in basis spreads.  

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Here is what I think may take place.  I think that through the video sales, cattle may or may not be higher.  I think at the same time, you will see futures traders continue to sell as after the video sales are complete, I would think cattle feeders will have had their fill of even higher priced inventory.  Hence, long way around the barn, but don't be surprised to see a greater than $8.00 positive basis form and potentially remain that way into the end of August.  This would be the futures market ignoring spot price action in anticipation of lower price action to come.  That would be a reason why a positive basis could form. 

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Hogs:

​Hogs were mostly lower.  Basis has converged.  I don't expect much in directional trading for hogs. ​

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Corn:  

​The bear markets resumed.  For every stalk or plant that was damaged, everything else got a great drink in the middle of the summer.  No doubt these weather issues are concerning.  But not nearly as concerning as the amount of unsold grain and oilseeds.  Hence why the price is believed trading lower.  I see nothing to do with grain at this time as downside targets remain unfilled. 

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Energy:

​Energy has seen both sides of unchanged today.  With the driving season at least on the backside now, I anticipate a softer trade in energy.  Yes, I do recall how wrong I have been, but I am not bullish energy and continue to expect some softening in price. ​

Bonds:

Bonds recovered from a mild correction of the past two days of higher trading.  Bonds were able to push above Friday's high Monday afternoon with expectations of even higher price movement.  When I look at the old adage of buy low and sell high, bonds are low and equities are high.  You may want to review this.​​

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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.