“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
12/18/2024
Live Cattle:
A softer tone developed today. The obvious continues to be stated. We know we are short of cattle. We know the commodity funds are long at a historical level with prices at historical levels. We know the commodity funds hold no loyalty to any market and will turn tail were fundamental aspects of cattle demand to soften. We know that if expansion starts in earnest, slaughter cattle numbers will decline. We know if expansion doesn't start, then beef production would be expected to remain steady. With a great deal of factors know, and having had time to be traded in the markets, we need some unknowns to push prices higher or lower. Higher would suggest greater consumer demand or expansion. Both are questionable at the moment. Lower could be a plethora of factors from the consumer to resumed inflation, to a notice that even though we are short of cattle, we are not short of beef. Lastly, we know the incoming administration is going to flip the script from the prior in rare fashion. What we don't know is whether the new script will be bullish for the consumer or bearish. Today's rate cuts suggest the Fed's desire to stimulate the economy over attempting to erode inflation. Equities didn't like this and sold off sharply. Inflation keeps consumers buying power low, eventually causing prices to decline. So, consider that the way out of inflation is to inflate. Higher prices are the cure for higher prices. Cattle and equities have had a rash of higher prices, believed going to slow demand for these markets.
Update on Head & Shoulders pattern in the cattle market.
Feeder Cattle:
With the increases of open interest, both sides are dug in. As above, with so much information available, and time to have introduced this information to the market, it leads me to believe that it will take something new to route one side or the other out of the trenches. Since there is no leeway in margins, if the new something is not spectacular, feeder cattle prices would be anticipated to drop significantly. Again, I look at who is long and short, and where. Commodity funds have been the noted longs in live and feeder cattle with commercials primarily the short. The funds, who have no loyalty to any market are long at or near the historical highs of cattle prices. The commercials, who tend to have a vested interest in the cattle market are short at or near the historical highs of cattle prices. While none of this will make the price go up or down, it is more than interesting to see who the players are and where they are playing from. Of concern would be that traders get a whiff of something negative and run for the exit door, creating a very bothersome positive basis again. There is no concern of the market moving higher as all fundamentals point towards lower cattle numbers, and it is exactly what has to happen to keep some from being out of the cattle business.
Hogs:
Hogs were mostly higher with the index up $.14 @ $83.98. I expect the lean hog index to decline to approximately $75.00.
Corn:
All three were lower today with beans making more new contract lows. Data viewed this morning suggests that Brazil's increase in crop production of '25 will nearly equal to what we export to China. With USDA believing more bean acres in the US for '25, there should be no shortage of beans for a while. Corn fell between the 50% and .618% retracement levels today. I continue to recommend owning at the money call options on corn to keep from a variable cost becoming bothersome to historically priced cattle. This is a sales solicitation.
Energy:
Energy ended the day mixed, but was higher for most of the day until the Fed's minutes were released. January goes off the board on Thursday with February about $.60 under the January. I continue to expect energy to trade higher.
Bonds:
Bonds made new contract lows today. Talk about a spread between the Fed window and retail rates, it is exceptionally beneficial to banks. On the flip side, the consumer, who's rates tend to be dictated by the 10 year note's yield, are paying elevated rates to borrow money. I get the feeling that the Trump administration will inflate its way out of debt rather than the Biden administration putting out another 3 trillion in the "Inflation Reduction Act". That is laughable how spending money would reduce inflation. Equities are plummeting as Powell has stated that cuts into '25 will be fewer. So, it is not today's action the market is believed reacting on, it is what is coming down the road next. With this rate cut, if inflation grows again, the next move may have to be a hike.
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.
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