“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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3/27/2024

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Live Cattle:

Very little took place today after another excessively volatile day.  Traders fled in droves on Tuesday.  Open interest dropped over 8,000 contracts.  Triangulation of price continues to be the anticipated move.  As it appears margin has dried up all the way to the backgrounder, it is believed that some are simply not going to pay the price.  The industry is changing rapidly.  More market share is believed being sought by some end meat sellers. To some extent, I believe this to be part of the rally in feeder cattle, as seemingly this is the weight class and under they are attempting to garner more control over.  Buying them, and selling the beef, is believed to have increased their profitability over more traditional forms of procurement for beef. A combination of this factor, and the natural volatility of the markets is believed helping them to achieve such.  Regardless of what they do, the goal of rationing cattle, in an attempt to keep from losing beef demand, remains.  The agenda, to accomplish such, is believed solidifying further with an increase in cattle exports from Mexico.  Up sharply this month, it fits well with the increased imports, decreased exports of beef, increased box price to keep some consumers from buying or buying the desired cuts, exploration of the dairy/beef cross, and of course, ratcheting the price of feeder cattle to levels for which fewer can financially participate.  

A trade or close around the $172.00 area August is anticipated to be the bottom of this leg within the triangle.  The top of the triangle is drawn in respect to what has already been traded.  The bottom portion of the triangle is drawn from computer generated Gann Fan lines.  Therefore, the top line is exact at the moment with the bottom a guess as to where traders may take prices.  Of one thing we know.  Were the March placements to be equal to, or no less than 2% of last year, the amount of fed cattle inventory through the summer will be perceived as ample.   

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Feeder Cattle:

The dramatic shift in basis has provided opportunity for all.  Those that wanted to buy cheaper can.  Those that were looking to profit from a decline, potentially can. Like the fats, further triangulation is anticipated.  For the moment, the bottom portion of the triangle remains a considerable distance from, regardless of contract month.  Today's minor inside day leads me to anticipate further downside pressure.  I recommend using the recent decline to adjust positions if desired.  Whatever you didn't like, undo it.  What you did that you did like, do more of. I am expecting a sizeable drop in cash feeder cattle.  Potentially, as much as 10% or $25.00.  This would put the index back to approximately $226.00 and then we see what the crystal ball says about ability to expand.  Most of this decision will be due to hay production, and that won't be noted until the end of May. I think it as possible liquidation continues well into the summer.  In my opinion alone, the longer the agenda remains in place, the less price impact the loss of heifers to expansion will produce.  It would not surprise me to see multiple days sideways before moving higher or lower. 

Hogs:

Hogs posted an inside day.  I recommend selling June hogs with a buy stop to exit only at $103.80.  This is a sales solicitation.  The lean hog index was up $.57 at $86.15.  

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Corn:

I recommend being long December Chicago wheat and short December corn.  This is a sales solicitation.  I recommend being long July wheat with a sell stop to exit only at $5.42.  The sharp decline in corn has led to either abandoning the previous recommendation for the options spread, or have to take all strikes down to the next level.  This would entail buying the December $4.60 corn put, selling the $3.80 put and selling the $5.20 call for approximately $.11&1/4.  This is a sales solicitation.  If you enter into this spread, you will either make some portion of the bear put spread, or you will be marketing new crop corn when futures hit or exceed $5.20.  You may assume a small loss in the total options position, but the reward is selling new crop corn $.60 higher than at present. This position has limited profit potential between the two put strikes and unlimited losses above the $5.20 call. Be sure you understand the reason for applying this trade and the consequences of.  If corn is at $5.20, you are going to need to make a cash sale, whether you like it or not, and most likely exit the options strategy as it has accomplished its goal.  That being selling the corn higher. 

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Energy:

Energy prices were soft for most of the day.  At the close, crude was flirting with plus on the day with both products not down by much.  I would anticipate some risk on buying Thursday in order to sleep well through the 3 day weekend.  Some analysts I have high regards for have been bullish energy, with few aspects of the market moving lower, from previous information gathered earlier this year, having materialized. 

Bonds:

Bonds were firmer today.  These are new highs from two weeks ago lows.  I think it possible that the current bout of inflation is leading some to expect a curtailing of consumer spending.  This has been the thought for quite a while, but evidence hard to find.  With the labor market still strong, it will be interesting to see what Thursday's jobless claims will be.  

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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.