Shootin' the Bull about who owns what and where.

“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​12/12/2024

Live Cattle:​

Fat cattle were higher, along with boxes. Now we see how much higher, or not.  Out to the August contract, none made a new contract high on this move up.  The October and December did and February of '26 made a new contract high on Wednesday of this week.  Most of the '25 contract months are very close to their respective contract high.  With the production side of the industry producing new highs, for most every weight class, as these new highs are pushed on to the consumer, resilience will again be tested. 

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Open interest increased significantly at the known top of the market. This means that every new long position in futures owns cattle at near contract highs, and not too far from all time cash high.  This also means that every new short position in futures has sold or marketed inventory at near contract highs, and not too far from all time cash high.  It takes one new long and one new short to make one new contract of open interest.  You can have 1 person long 100 contracts and 100 people short 1 contract each and as long as each is a new participant, the open interest increases by 100.  So, where things can get a little out of whack is potentially only a few participants owning a great deal of long positions and potentially multiple industry participants short a great deal of the short positions.  Whether it makes much difference or not, those long live cattle futures are not believed industry participants.  Those shorting the market are believed to have interest in the physical product for which participation in the futures and options market a hedge to help offset any potential adverse price fluctuation.  

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Feeder Cattle:​

Basis is jockeying around with futures and the index up and down on different days.  Nonetheless, expectations are great in the feeder market with the increase of over 2,000 contracts gained of open interest on Wednesday.  Same as above, in belief that speculators, and potentially some feed yards and cattle feeders long, but mostly backgrounders are believed to be holding the short positions.  There is no reason for them not to, as some have acquired the most expensive cattle inventory in history. Recall that at the moment, cattlemen are the ones bidding cattle higher.  There is a push to ration cattle as there are seemingly more cattlemen than cattle.  Recall what packers did when they found there was too much packing capacity for the amount of cattle available.  They cut slaughter capacity, bought out poor performing plants, mothballing them, and have yet to increase capacity, other than modernization that allows for larger carcass to be handled.  I think a great deal of the money that was given out to increase slaughter capacity was thrown to the wind.  As well, with fewer cattle, those who increased or created capacity may not ever see the need for it.  This current rationing will produce a similar result.  There will be fewer cattlemen due to inability to afford the risks being assumed.  Those assuming the risk will now have to manage the expansion of their operation in every form.  I think it potentially as likely that some of the rationing will take place from a few that have bought inventory with little to no potential for a return on investment.

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I have yet to change the feeder cattle index with the new highs.  I will produce a webinar on Monday that will follow through to where we are at present.  An observation today is the 5 wave move up from the 11/13 low of $249.02 to today's new historical high of the index.  It is possible I have missed an entire wave sequence that would suggest an even higher price.  I think it more likely I missed a minor part of the wave count with the entire rally from the 9/24 low of this year to the high today another 5 wave sequence that is currently believed as likely to have topped the market as does project a higher trade.  

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​​Hogs:

​Hogs held their head above water today.  I believe hogs have topped with expectations of the index declining to approximately $75.00.  The lean hog index was up $.28 at $83.61. 

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Corn:  

Corn was soft.  I recommend you revisit your variable costs and see how fixing some of them would help you manage the other risks that are unable to be managed into the future.  ​

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Energy:​​​​​​

Energy was mixed for most of the day.  I expect energy to trade higher.  Again, I recommend you visit turning some variable costs into fixed costs.  

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Bonds:

Inflation continues and the lower bond and note market, coupled with the rising US dollar are functions to help mitigate inflation.  However, it is noted the Fed has a higher propensity to lower rates again in December.  Lowering interest rates is stimulus and stimulus produces more inflation.  I watched a clip of Paul Tudor Jones this morning. His comments were that his belief is that commodities are under priced with expectations of the incoming administration to inflate their way out of debt.  Recall that Trump is a builder of things and low interest rates benefit growth immensely.  This will look a lot different than the inflation caused by the current administration of giving away everything.  How, I am unsure, but I would expect a slightly different outcome.  

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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.