“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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4/26/2024

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Live Cattle:

In my opinion, the discovery process continues.  Of the most importance coming up will be the amount of inventory available in the large summer video sales, and how quick buyers will be to procure inventory at price levels that are sometimes the high for the year. I think this year, with the triangle continuing in formation, that we could see futures traders push futures back to the down trendline of the triangle early, and then possibly when the cash sales come around, they don't meet the expectations of the futures.  If there were a trend of some kind still intact, it would be that few cash trades have met the expectations of levels futures contracts have represented.  So, the next most probable move is for futures traders to continue to trade within the triangle, while producers gear up again for the moon.  I continue to anticipate futures traders to offer producers opportunities to market inventory at levels that may or may not be achieved in the cash markets.  

 

This week was the first in many where indications of the economy slowing were evident.  The GDP report was grossly missed and personal income was up less than expected.  Next Friday will be the unemployment report, which has been aggressive in finding new people at work, and seemingly balanced between the excessive layoffs that have been reported. Nonetheless, it is weakening economic growth that is believed the next most probable move for the US. As the current administration fans the flames of inflation, with every form of give-a-ways as possible, the Fed is having a difficult time against such. With the first clues being the bond market continuing to trade lower.  The second is the reversal of inverted carry in the diesel fuel market.  Were gasoline and crude to begin reflecting a like movement, it would be a sign of further economic weakening.  The consumer has a great deal to overcome with the inflation now stagnating.  The once transitory inflation has become entrenched and seemingly now stagnate.  Routing the inflation out of the trenches is expected to cause further issues.  With the bird flu front page news, its impact on interstate commerce, and potentially the consumer, there is believed a wall of worry being created in the cattle market.  I think it better to plan and market accordingly to what is available, than continuing to expect the moon.  Here is why, although prices have somewhat already been to the moon, we find that few took advantage of it.  What good does a high price do if you don't capture it?  I continue to believe that with the widening basis again, it will produce an opportunity to market cattle in the futures and options markets at prices that may or may not be realized in the cash markets.  If you don't understand basis, you need to.  Learn this weekend.  If you do not want to learn, or don't care, there is never a reason to ever look at futures for direction, or expectation of a cash trade.  Basis is a mathematical calculation that is quoted as cash minus futures.  The spread between the two is basis, and can be positive or negative, suggesting that if one is not favorable, the other may be. In capturing the basis, you are solidifying your marketing to between the two prices of cash and futures for which at convergence of, you are only entitled to the spread of the basis you acquired at inception of the position.  Hedging and the management of risk is capital intensive. It has to be weighed carefully between how much more working capital it may take to maintain a hedge or futures position over not doing anything at all.  Consider all of this before taking action.  Of the most important is that you can calculate and figure out exactly what your position will be at any given time with the price of futures known, or estimated.  So, don't jump in unknowing, put pencil to paper and estimate at what prices your hedge will be of benefit or detriment and by how much.  Go to extremes in both directions, but know that the end result of attempting to capture the basis will be convergence and that is all you are privy to. 

 

Energy prices are expected to soften greatly.  The reversal from inverted carry to a carry charge market in the diesel fuel is believed the first step of recognition.  Seemingly, it is as if the consumer is the big buyer of energy as gasoline prices have not subsided and the spread between gasoline and diesel fuel continues to favor gasoline higher and diesel fuel lower.  Starting to see the economic growth slow will be another aspect of suggesting energy will trade lower.  Bonds continued to move lower through the week. Even after a terrible GDP report there is someone out there either dumping bonds, or the Fed is manipulating the yield curve.  Regardless of which, or probably a combination of the both, it leads me to expect a reversal in the bonds and have them moving higher.  The equities are trying to path holes and reinflate.  I think it will be difficult to achieve with price action from the 4/18 low believed a wave B or wave 2 correction of the initial decline from historical high.  Note the "historical high" as everything is inflated.  With the supply issues of cattle well recognized, and seemingly an agenda in place attempting to achieve producing more beef with what is available, I look at demand and believe this is where greater price fluctuation will come from than the supply side. 

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Feeder Cattle:

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Hogs:

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Corn:  

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Energy:

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Bonds:

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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.