Shootin' the Bull about a desire to own cattle

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​11/21/2024

Live Cattle:​ 

With a belief, not to be confused with fact, that a portion of the buying that has lifted the feeder cattle index, causing a flurry of activity in feeder cattle futures, is due to the desire to own cattle to place on wheat.  Commercial cattle feeders buy only a small percentage of their inventory on the open market.  As well, breakeven costs were poor to begin with, leading me to think that cattle feeders would not crush margins upon themselves.  Nonetheless, cattle feeders are being squeezed again with recommendations to own the at the money put options in the February and April contracts to keep a marketing factor from becoming a problem.  This is a sales solicitation.  Today's continuation of higher interest rates, making all new purchases on credit more expensive, and the new contract high of the US dollar index, helping to encourage imports and discourage exports, is believed a portion of the incoming administrations agenda to lower inflation.  Recognition of this is urged, even if you do not believe it, or you think cattle will trade counter to this agenda.  ​​

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Feeder Cattle:​

Again, not to be confused with fact, but I believe backgrounders have had to inch their way into heavier cattle to place on wheat, for which some are heavy enough to influence the CME index.  This, along with the evening of basis, has narrowed margins sharply to the cattle feeder.  Therefore, I recommend you be overly cautious to be the last few bidding, because if or when the pastures are loaded, or the cattle dry up, cattle feeders are not expected to start bidding immediately on any slightly lower price.  Especially with 12 million head estimated on feed, at heavier weights, with only the expectation of expansion floating around.  As quickly as those expectations popped up, they can fade as easily.  With all that has been commented on, and positions recommended, I am looking forward to seeing where the price settles against the predetermined price ranges recommended with futures and options.  I continue to believe that backgrounders are in more fear of missing out, reflected in current prices being paid, increasing their risks, than they are about a price decline of any significance.  As higher prices tend to be the cure for high prices, one may want to consider who will come behind you to pay that higher price?   ​

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​Hogs:

​Hogs were firm.  The index was down $.66 at $87.83.  

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Corn:  

For cattle feeders, I continue to recommend owning the July $4.60 corn calls.  This is a sales solicitation.  Grains were lower with beans finally making a new contract low.  With a mild expectation of this being the 5th wave down in beans, were corn and wheat to continue to trade sideways, let beans make their lows, the spring may not be nearly as bad as it looks at the moment. ​

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Energy:

​Energy is higher today with spot January crude above $70.00.  A close on Friday of the weekly continuation chart above $70.38 will exceed the two weeks close and add some credibility to this being a bottom.  A close above $71.78 will lead me to believe a reversal is taking place with expectations of energy prices moving sharply higher. My belief, again not to be confused with fact, is that higher energy prices would help the incoming administration combat inflation.  With today's further movement of higher interest rates and a higher US dollar, this would simply fit right into the agenda to lower inflation.  I continue to believe that short supplies are not nearly as bullish as the consumer demand is, simply due to the money still available to buy things with.  Therefore a rise in price would do two things, it would limit the buying power of the consumer, and entice production from the higher prices.  While a few are starting feel a pinch, I think there is a boat load that are on the verge of feeling that pinch, leading me to expect further shifting in discretionary spending.  ​​​

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Bonds:

​Bonds continue to be weak, with the US dollar firm.  Every new purchase on credit costs more and the currency exchange rate is encouraging imports and discouraging exports. This comment may be on a continuous loop.  ​

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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.