“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​11/8/2024

Live Cattle:​ 

In my opinion, a great deal of resolve has been seen this week.  A new Presidential administration, the Fed lowered rates, and cattle/beef seemingly made highs for which few were willing to pay.  Boxes fell off a cliff at the end of the week with cattle prices following suit.  Expectations of contraction in government spending are believed to be having some impact.  Consumers have been dealing with this current bout of inflation through October and into November.  Their resilience is being tested.  This week saw the bond market blow out the bottom of a long down trend.  The US dollar blew out the top that has been creating a very friendly import arena and poor export.  Exports were the lowest for the year and that makes more supply available domestically.  With beef production equal to last year, and cattle on feed equal to last year,  there isn't a great deal to expect from the supply side.  Therefore, demand becomes a more driving factor.  

Of the most interesting this week has been the commodity funds.  They have been noted to own over one third of the long positions in live cattle with a great deal of those placed starting on 10/21.  Most, if not all, of those new long positions have jockeyed back and forth between small profit and small loss the past two weeks.  Seemingly, not to be confused with fact, but it appears some thought that cattle/beef would rally sharply on a Trump victory.  Potentially, this was a reason for the large increase in open interest, at the top of a known price range.  When it was known he won, cattle seemed to be very lethargic to the victory.  Now, with cash fundamentals beginning to erode, long positions are in jeopardy of being severely overpriced, with a producer benefiting greatly from the widening positive basis.  While not the biggest transfer of risk I have seen, but a rather large one nonetheless. With Friday's gap down opening, and cash markets seemingly soft, I anticipate further selling into next week.  On Friday's WASDE report, the USDA raised 2025 beef production again, sighting heavier carcass weights and lack of expansion holding back heifers. 

Energy prices rose for most of this week with them having tapered off by Friday.  I expect energy prices to move higher.  I say that with full knowledge of "drill baby drill" and potential sanctions placed on Iran.  Still, energy is a commodity and more responsive to wars and actions than political attempts of control.  Higher energy prices would go a long way in helping this administration curb inflation.  Recall that food and energy are most often excluded in government reports due to their volatility.  So, reports could still reflect their agenda as working, all the while energy prices move higher.  I continued this week with recommendations to top off farm tanks, book some fuel, forward contract some fuel, or own call options on crude oil.  This is a sales solicitation.  Coupled with fixing fuel prices were fixing feed costs as well.  Farmers appear reluctant to come off the wide basis.  Cattle feeders are believed needing a little boost of inventory after harvest, but basis has seemingly kept them from buying a lot.  If basis doesn't improve, and prices continue to rise, at least having fixed the price would be half the battle.  Bonds have been going down sharply, and then the Fed cut rates, and they blew the bottom out. This has opened a wider window of profit margins to banks for which is expected to be narrowed quickly.  I anticipate Wednesday's blow out bottom in bonds to be a low for some time to come.  The US dollar may continue to be attractive, holding exports down and encouraging imports.  Cattle prices are high, they had every chance to go higher and seem to have chosen to trade lower.  Don't let the past 4 years of a bull market damage your gains.  

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.