“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​1/6/2024

Live Cattle:​

The rationing continues.  I field phone calls from those who could not be more elated that prices are high, with great expectations of even higher.  I get the full spectrum down to the individual or company that knows in commodity production, "what goes up, comes down."  Maybe not in a time frame we imagine, but the laws of supply and demand continue to hold true. When short of supply, increases in supply are sought and when they are abundant, new forms of demand are created.  Supplies of cattle are shorter than they have been with beef demand still believed a function of government spending over the consumers willingness to pay a higher price.  Some pictures on X through the past couple of days have shown bargains of whole rib roasts marked down after the holidays, for which we know there was no glut of.  

The cattle feeder took it from all sides today as input costs of everything was elevated further.  From the feeder steer itself, to the interest rate on borrowed money to own them, input costs rose again today.  Feed and fuel were not left out and only goes to project the profit margin outcome solely dependent upon a higher price for fat cattle.  

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The "have to trade higher" aspect to profitability is seemingly in full play as there are no margins to start off with and no premiums in the futures to market against. Therefore, hedging becomes almost a "have to" situation with so much working capital at stake and no margins to work with. Hedged or not, assumption of risk is staggering when there is no margin on production, and all profitability hinged upon a consumer's ability to continue to be resilient spenders.  

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Feeder Cattle:​

​The rationing continues.  It will continue until the industry has narrowed the production capacity to the number of animals available or, the inflation begins to impact consumer's discretionary spending habits on beef purchases.  Since it will take a lot longer to reduce production capacity, one should continue to root for the consumer's resilience to keep beef, and therefore cattle, prices elevated. 

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​​Hogs:

​February was down sharply today with the other months barely plus on the day.  The lean hog index is down $.87 at $83.12.  The index is expected to decline to approximately $75.00.  Summer months of futures remain at a starkly negative basis.  While it has been wider, and summer hogs tend to produce some of the highest price for the year, pork production should keep ample pork on the store shelves.  Of equal cuts pork to beef, a pork rib loin is approximately $2.99 lb. and beef $14.99 lb.  ​​​

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Corn:  

All three were higher today with corn still bumping its head on $4.70.  A trade above $4.70&1/2 will lead me to expect a surge to $5.00 July corn.  As the bout of inflation is picking up steam, grains are apparently on board with.  As well, it didn't hurt that President Trump stated tariff's may not be broadly used.  As March beans are flirting around the $10.00 level, I recommend setting your sights on making some old crop cash sales if March were to trade up to $10.60.  This is a sales solicitation.  ​​

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Energy:​​​​​​

Although crude was lower on the day, it made a new high in this rally with spot coming to within 1 tic of $75.00.  I think crude will trade sideways to slightly lower for a couple of days and then resume its up trend.  Were this to take place, it may produce an opportunity to top off farm tanks or book some fuel for spring usage.  Diesel fuel was able to hold today's gains to close higher.  I expect energy to continue to trade higher.  Recall that China is wanting to stimulate and rattling sabers at Taiwan, and Israel has pretty much wiped out all of Iran's air defenses.  There is no shortage of conflict that has the potential to have us wake up one morning to $10.00 higher crude.  Taking us down by that much would suggest a depression is about to hit.   ​​

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Bonds:

​All timed bonds and notes were lower today.  The sell off in price continues as we can all see that inflation is not any lower, only growing at a slightly slower pace.  This past couple of weeks of spending though may have sped up the pace.  Will cattle/beef continue to appreciate in price with the inflation, or will the inflation begin to impact consumer's discretionary spending habits.  The incoming administration has promised a great deal of reversals towards the past 4 years of Biden.  So far, only the US Dollar and interest rates have been impacted.  That leaves a lot of markets still left to figure out which way to go.  ​

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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.