“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
12/2/2024
Live Cattle:
As much jubilation as I have seen and heard recently from cattle selling at exceptionally high prices, it doesn't appear to follow through to those buying them. Those paying these prices for feeder cattle are not only starting off in the hole, but a pretty deep one as spreads between starting feeder and finished fat continues above $70.00 and recently having come down slightly from just below $73.00. That is a lot of dollars to make up with weight gain and no telling the cost of gain. That cost of gain can vary greatly as well between farmer feeders and commercial yards. When one discusses what risk is, I think the current environment is one that could fill a dictionary. Simply the higher price of incoming feeder cattle would the first. The more money you pay, the more you are at risk and greater probability you will need to sell at an even higher price to profit. Next is feed, which is cheap now, and may continue to be, but we don't know. Energy is trading sideways while the middle-east is in an uproar and Russia continuing its conquest for reuniting the Soviet Union. Then, let's throw in the past 4 years of frivolous spending from money supplied by the government, and literally poured out into the streets. With this administration having been out of touch for quite sometime now, the incoming administration is familiar with taking a hard stance on frivolous spending, and with great expectations of reducing government spending. As we know that elasticity in some markets is greater than others, it is believed that cattle are an elastic market. Therefore, small changes in supply and demand cause large price swings. If salt were to double in price, few would give any consideration to. I think consumers are elastic as well. That being, small changes in employment or wages can cause increases or decreases in discretionary spending. No doubt, the Covid relief payments, and forgiveness of untold debt exaggerated the consumers ability to spend. With the next four years believed one of contraction in government spending, no forgiveness of anything, and direct implement of reduction of human presences in the US, I anticipate spending to slow to what looks more like living within ones means. These are fundamentals that may or may not further exaggerate the price seen from a decline of cattle production. When considering the increase of beef production from the agenda, a decrease in consumer demand would be expected to tip the scale slightly towards lower cattle prices.
The flip side is that were consumers to continue to spend at this level, pushing beef and cattle prices even higher, then a great deal of cattlemen will sigh relief.
Feeder Cattle:
Backgrounders are losing margins as well. Most of the above will apply to backgrounders. All in all, the drought the first two weeks of October committed a larger number on feed than usual. After such, the rains came and for some reason, producers feel they are out of cattle. There were no more or less starting in October, the difference now is that the same number traded will be scattered along the time frame than if were continually placed at the higher level due to drought. It's that the rain fell, and cattlemen wanted to put cattle on wheat. So, they did. It doesn't make for more or less cattle, just spread out a little more. If November placements are not too light, then the first quarter and into the second should have ample cattle production for beef. Risk continues to grow with the higher prices. Similar to musical chairs, there are only so many cattle to go around and the one left having paid the top price may not necessarily be the winner.
Expansion continues to be the buzz of how cattlemen will continue to see higher prices. Holding back heifers is expected to create a shorter slaughter list going forward. First, you have to get the cow/calf operations to hold back heifers, then you have to convince them that paying top dollar for cattle today, will benefit them in two years when all those held back have yearling's on the video sales with 4 to 8 more years of them coming. A lot of cow/calf producers have probably slaughtered the last of the heifers they bought in 2014 at the highs then. As many believe cattle production is cyclical, as soon as the expansion phase starts, I would have to say the end of the bull run will be close behind. For the time being, continue to root for the next guy to buy your cattle at a higher price, and have your marketing parameters set, just in case they don't.
Hogs:
Hogs were higher with the index down $.30 at $85.21. Virginia McGathey said it best today, that there are no hog traders trading hogs. I can see that pretty clearly as basis diverges in the spring and summer months with hog production not expected to subside. As well, the volatility and price expanse in minutes is phenomenal, as well as the quick decline in volume to trade sideways for the remainder of the session. Regardless, the new highs of the futures leads me to believe this is the 5th wave, starting from the 11/19 low with expectations of a new contract high this week being the 5th of the 5th wave. Moore Research seasonality suggests lower trading into December. The summer months above $102.00, with an index in decline at a $17.36, leads me to recommend hog producers market summer inventory with a fence options hedge. This is a sales solicitation. I recommend owning the at the money to two dollars out of the money puts on April and June hogs. This is a sales solicitation.
Corn:
Corn ended the day higher with beans soft and wheat mostly soft. I expect lower beans and wheat with steady to higher corn.
Energy:
Energy was mixed for most of the day with crude and gasoline higher and diesel fuel a tad lower. I expect energy to trade higher.
Bonds:
Bonds were a little higher with shorter term debt lower. The US dollar is believed resuming its up trend with a 5th wave to a new contract high expected.
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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