“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
11/18/2024
Live Cattle:
Fat futures were a little higher. The squeeze of margins is the most interesting aspect with a belief of cattle on feed over 12 million head and a scramble to bid higher for incoming inventory. What I believe, albeit from fact, is that farmer feeders are the culprit in putting up the price of feeders. Their metrics of feeding differs from a commercial lot. Nonetheless, margins are being squeezed between feeder cattle and fats. Last weeks flurry of activity in the futures markets is believed to have transferred a tremendous amount of risk. With today's slightly higher negative basis to February and April, I recommend cattle feeders get busy owning the at the money put options in the February and April contracts. This is a sales solicitation.
Feeder Cattle:
With basis narrowing to even, it will soon be the worst for both worlds in that neither buyers or sellers have discount or premium in the future to work with. I continue to believe that were futures traders to push basis back to even, producers would move quickly to secure such. Especially now with less than $10.00 to the top, allowing for options strategies to potentially benefit from a new high of the index. I have made the changes on the index chart below. For the time being, I simply elongated the wave 4 with current price action the wave 5. The halt around the $250.00 area of the index is at a 50% retracement level of the decline from $261.88. A .618% retracement is marked at $253.34. This is believed the next resistance point of the index. While there is no doubt in my mind that producers can and or will push prices to new highs, it won't necessarily suggest a profit potential. As well, what it would most likely do is continue the contraction of the industry. If higher prices are the cure for higher prices, and the incoming administration is not fond of high prices, it leads me to expect this current bout of inflation to be used to market into the future, for which Trump has great expectations of lowering inflation. There is a great deal of divergence taking place at the moment in fundamentals, and margins between sectors. So much so, that I am not willing to abandon previously recommended positions in expectation of a higher price. If the higher price comes, more likely than not, you have more cattle to market in the future.
Hogs:
Hogs were a little firmer today with the index down $.51 at $89.27. I continue to recommend owning the $86.00 or $88.00 April put options. This is a sales solicitation.
Corn:
All were able to be plus on the day at the close. July corn has my attention with the beginning of a triangle formation. The $.20 spread between December '24 and July '25 at $.20 is a very narrow spread to own corn out to July. For cattle feeders, seemingly stacking up expensive feeder cattle in the pens, I recommend buying the July $4.60 corn calls. This is a sales solicitation.
Energy:
Energy prices were sharply higher today. While last weeks close on crude wasn't what was expected, it didn't do any irreversible damage either. Hence a close this week above $71.78 spot month will keep the pattern intact with expectations of a sharply higher trade in energy prices. Diesel continues to trade between $2.15 and $2.33. Once, or if above $2.33, I would anticipate a quick move to above $2.43, the last high in October. The carry charge in diesel fuel is even out to December '25. I recommend you do something to mitigate the potential for a rise in fuel prices. This is a sales solicitation.
Bonds:
Bond traders have converged within a 3 point range and beat the hell out of both ends the past two weeks. This morning, traders set a new low from the contract high by a tic. At the moment I think this could be a short term low that turns into a longer standing low.
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.
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