“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​11/22/2024

Live Cattle:​ 

In my opinion, the division is clear between the expectations of expansion creating a shorter supply of cattle, and the expectations of the incoming administration to lower inflation.  Both ideas are believed being traded heavily at the moment as the increase of open interest suggests a significant transfer of risk is taking place.  At present, there appears a twofold event causing the recent flurry of price activity. One is that with the return of moisture to wheat pastures, grazers that thought this year wasn't going to happen, literally changed overnight to clamoring over the lighter weights.  I think some of this flurry has seeped into heavier animals that could be reflected in the feeder cattle index price.  The other part appears a renewed bullishness due to thoughts of expansion.  The wide positive basis and firming of the index has caused basis to converge with futures moving higher.  This gives the appearance of a wildly bullish market, but when viewed from the cash perspective, the little over $5.00 increase of the index, in the same time frame, doesn't quite reflect the futures enthusiasm. I think these are the main reasons for the past two weeks of price advance. With prices at, or very near historical highs already, and seemingly little to no margins to work with, I believe a great deal of risk is being assumed at this price level.  Of interest to remember is that high prices encourage production, just like it has increased the beef/dairy cross industry, imports, and now, thoughts of expansion.  As well, high prices tend to discourage demand as fewer and fewer can afford the product, or assume the risk of ownership. 

The flip side is that the outgoing administration poured money on to the streets, fed tens of millions of people for free, forgave loans they didn't make, and subsidized every form of alternative energy to the max. This is all reflective of government spending, leaving little doubt that the government spending was the inflation.  The incoming administration has stated they will reverse multiple subsidized programs, stop forgiving loans with potentially reinstating them, and stop housing and feeding tens of millions of people for free.  As well, some markets have already begun to trade in a manner that is conducive to the incoming administrations agenda.  The already tremendous head start with bonds and notes lower, producing higher interest rates, makes every new purchase on credit more expensive.  With the strong US dollar, the exchange rate encourages imports while discouraging exports. As I continue to think out loud, I understand a cattlemen will pay most anything to stay in the cattle business. Especially as the industry is changing and believed contracting into much more efficient lines of vertical integration.  However, enthusiasm doesn't always equate to profits. Therefore, while the price is high, less than $10.00 from the current historical high, I recommend you take measures that would allow for some leeway, were cattlemen to bid themselves into $300.00 feeder cattle, and the best protection possible to maintain as much of the recent premiums offered as possible.  In my mind's eye, these two expected factors are going to be phenomenal to watch play out. 

Grains and oilseeds continue to be soft.  Beans made new contract lows this week with wheat testing theirs.  Corn has held better than I expected with ideas to own the July $4.60 calls to help fix some input costs.  Energy prices ended the week higher.  The weekly close above $70.38 added great credibility towards my analysis of energy prices moving higher.  A close on the weekly continuation charts of crude above $71.78 will be viewed as a reversal to the upside. While counterintuitive towards Trumps agenda to lower inflation, one aspect could be that a higher energy price would go a long way in curbing consumers spending habits.  Therefore, bringing down spending very quickly.  Bonds and note futures remained lower this week, keeping retail rates to the public high.  The lowering of the Fed rate though did open a wider profit margin to banks and lenders.  The US dollar index continued to trade higher this week, further encouraging imports and discouraging exports. All in all, it appears as this year is wrapping up with a great deal of unknowns going into the new year with a new, but familiar government administration.  I think managing input costs will be easier than managing cattle prices in the new year.  Just looking at the whole pie, cattle prices are high with some input costs low, or not as high as in previous years.  All that has to happen is consumers continue to spend under the Trump administration as they did under Biden's with a 180-degree difference in the two administrations. 

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.