Shootin' the Bull about faint of heart
“Shootin’ The Bull”
End of Day Market Recap
by Christopher Swift
1/29/2024
Live Cattle:
This market is not for the faint of heart. The expectations versus some realities may be starting to catch up. Beef production is not expected to go down in 2025. Expansion has not started and is questionable as to when or if. Expectations of expansion are believed a portion of the bullishness of cattle producers. Cattle that were diverted from feed yards in November, December, and some in January, to go on to wheat pastures, are still there and will be made available in March through early April. The 3% of Mexican cattle the US places on feed every month are still there, with a conspiracy theory that says they will open the border at the most opportune time for some, and inopportune for everyone else. So, don't lose sight that at some point in time this spring, there is anticipated to be a significant increase in feeder cattle supplies. It appears the tiger trap is being laid again.
Feeder Cattle:
The narrower basis is believed a portion of the selling. Producers were able to produce hedges with options spreads that put maximum sale prices $5.00 to $10.00 above current index reading. Margin calls have been noted as some of the reason for the higher trade in futures. No doubt there are some of significance. If you need to know how your hedge is working, simply take the interest rate on the loan, amount of money borrowed, and calculate the interest payment from inception to present. Whatever time frame you do this in, then calculate the advance of cattle prices in that same time frame and I believe it will come very close to you still making a significant percent gain on the cattle over borrowed money to maintain the hedge. As we have gone over this a multitude of times, get your lender involved. It can help considerably in two ways. One, you are not necessarily plagued with margin calls daily to meet. Under certain conditions, we call the lender, allowing the producer to focus on production. Second, lenders tend to like two factors of their client being hedged. One is that they know what minimum sale prices will be, and second, they are in the business of loaning money and margin calls can entail significant working capital. I have stated this before, but this is a dynamic shift in the cattle/beef industry for which producers are being rationed and only those that can manage the risks associated with significant capital outlay will remain. There is too much processing and production capacity for the number of animals out there. I recommend you consider what your role will be when the dust settles.
Class III Milk:
I recommend buying June milk and December call options on milk. This is a sales solicitation. Dairy replacement heifers are short, not expected to be replaced, with the advantage of milk prices being higher.
Corn:
Sharply higher corn and beans today. Commodity inflation is picking up. No change in stance. New crop marketing's need to be paid attention to and procurement from cattle feeders addressed. I expect corn and beans to continue higher.
Energy:
Crude and gasoline were soft with diesel fuel higher. I anticipate energy to resume the previous up trend. Previous recommendations to fix variable input costs are seemingly paying off, especially with the price cattle feeders are having to pay for incoming inventory.
Bonds:
Bonds are lower with the Fed having done nothing today. Commodity inflation is picking up and is expected to be more harmful to consumers than the overall inflation they have been dealing with since the 6 trillion dollars was doled out. That is because commodity items tend to be of necessity with the higher price of some, potentially causing a weaker demand for others.
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.
