“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​1/22/2024

Live Cattle:​

Traders shored up basis today.  Stout cash leaves discounted futures vulnerable to move towards.  New contract highs in most contract months.  Boxes continue to trade at the higher levels as well.  Rationing of beef and cattle continues with both as retail beef prices and cash cattle trade at the elevated levels.  I liken what Erick Norland said last weekend when asked what his wall of worry was in 2025, that being, we're not worried enough.  I think that has some to do with the cattle market.  However, the encouraging increasing open interest suggests that marketing prices are being fixed, therefore reducing the amount of risk one assumes.  Remember that whatever derivative you use, it is simply a transfer of risk from one party to another with the details within the derivative used.  When to assume more and when to assume less is what we are all attempting to figure out.  Working capital is being stretched and anticipated to continue so as the greater expanse of production capabilities attempts to be filled with less inventory.   

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​Feeder Cattle:​

Traders shoveled in some futures premium to the trap to narrow basis spreads.  As above, the increase in open interest is encouraging that at least some of the short positions will be hedges.  Cattle feeders continue to seemingly be able to hold above 11.5 million on feed.  I don't expect the inventory report next week to be much more than 1.5% lower.  Delays in the southern border opening may have prompted some of the buying today.  ​With extensive capital outlay, in a market where adverse price risk is inherent, the risk cannot be ignored. Shortage of inventory for available production capacity is causing producers to assume elevated risk of capital outlay.  Ask yourself who you wish to assume your the risk, and then chose the derivative to help you achieve the transfer of risk.    

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​​Class III Milk:

I have been watching milk closely as the beef/dairy cross has seemingly begun to impact the production of milking cows.  I am under the impression the industry is short about a million head of dairy replacement heifers.  In my opinion, I do not see any desire to expand at all.  Two reasons.  One, milk prices are higher, and the dairy industry has been plagued with over production and heavily subsidized for years. Two, the beef/dairy cross, and efficiency of production seems to have increased revenue streams for which won't be given up quickly to over produce milk cows again.  For whatever reason, milk sold off sharply the past three days and I recommend buying milk.  This is a sales solicitation.  I recommend buying either June, July, or August futures or December call options that are not too far out of the money.  This is a sales solicitation.  The market is inverted carry with historic highs between $24.00 and $26.00 per hundred weight.  Contract size is 200,000 pounds with minimum tic $20.00 and daily limit of $.75 or $1,500.00 per contract.   

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Corn:  

Corn and beans were lower today.  I recommend buying November beans with a sell stop to exit only at $10.00. This is a sales solicitation.  I expect corn and beans to trade higher. ​

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I recommend corn farmers to buy the December call option at the strike price they would be willing to market physical inventory.  This is a sales solicitation.  I recommend soybean farmers to buy the November call option at the strike price they would be willing to market physical inventory.  This is a sales solicitation.  Why?  Why would a farmer buy call options when they need to sell grain and oilseeds?  Because were the price to move to the levels desired, there would most likely have been a different narrative to have put them at that price.  Hence, you may have reservations on making sales in fear of "missing out".  Ownership of the calls may, or may not, give you the courage to make sales when prices are rising, knowing you can still have participation in.  I most likely would not look to make cash sales and then buy calls, as the reason you are marketing would be that you think prices have peaked. 

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Energy:​​​​​​

​Energy is forming a correction. I anticipate energy to trade higher.  The significant drop in diesel fuel this week leads me to recommend topping off farm tanks or booking some spring fuel.  

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Bonds:​​

​Bonds continue to be weak with the rally off the low very encouraging for lower rates anytime soon.  

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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.