“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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9/18/2024

Live Cattle:​

I find it more than interesting the Fed cut rates by a half.  I say that due to my initial analysis of economic government reports not reflecting the inflation impact on most consumers.  Hence, the numbers masked the issue, but maybe the Fed sees through this.  I doubt it, but we can still hope.  Nonetheless, I don't expect this to do much.  If rates remain lower when renewing operating credit lines, it will help some.  Other than that, I don't think a consumer will eat more or less, or pay more or less due to the change in interest rates.  If I were going to take anything away from the half point rise, it would be that we are truly in uncharted waters and more recognize this than thought.  A rate cut's intent is to stimulate sales and economic growth. I am unsure how you continue to fight inflation while now stimulating it. 

Cattle were closing when the announcement was made.  I don't expect this issue to move cattle higher or lower.  At present, there appears a lull in both trading futures and the physical.  Friday's on feed report will help to decipher the width of feast and famine in cattle production.  A lower placement number will be expected due to lower volumes of imported live animals from Canada and Mexico.  If lower placements continue through the remainder of this year, there will be a portion of the agenda that will begin to fall short of supply.  With recommendations already having been made to own the at the money puts for December and February fats, and cattle for slaughter in April not placed yet, this should help to manage everything out to the end of February.  The Moore Research seasonal tendency for October fat cattle is trade softer the last week of September and then move higher through expiration.  So, if you wanted to speculate a little, just don't hedge the ones due in October and maintain hedges for the December and February time frames.     

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Feeder Cattle:​

The index continues to sit dormant.  Having risen just a few dollars off the lows, cattle feeders are believed having to make some very difficult decisions on whether to bid up and own them, or wait to see if some factors creep in that weaken prices.  For the time being, the cattle feeder has shown great reserve in bidding inventory higher.  I don't think today's interest rate action would spur any cattleman to buy or sell.  With the rate hike believed reflecting a slowing economy and beef prices still at historical highs in the grocery, and just off historical highs of boxes, I remain more on the defense than offense.  While waiting to act, until after the report is released has its own set of risks, I am going to try to hold on until Monday and see if there isn't some type of rally higher to make sales against.  The inactivity of the CME index, a reflection of how aggressive cattle feeders are, suggests they are in no hurry to bid inventory higher, but normal conductivity of business keeping the price from dropping further at the moment.  Traders will have some time to sleep on today's information dump, leading me to expect Thursday and Friday's trade to be more representative of what the rates cuts may achieve.  I know that waiting is painfully difficult when there is huge risk to be managed in seemingly uncharted waters.  With some narrowing of the basis, and a $10.00 rally off the lows, taking action in this area would not be frowned upon.  I will attempt to see if there is a narrower basis spread to work from, or maybe another dollar or two put on futures before this weekend and take some action before the report.  What I am expecting is the report to show lower placements, a rally of some significance due to, and then we gauge the aspects of the consumer and their demand appetite for further price direction.   

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​Hogs:

​Hogs were higher with basis being converged.  The lean hog index was down $.16 today at $84.22.  Traders are expected to continue to narrow the basis spreads. 

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Corn:  

​Corn, beans and wheat were all mixed today. Some have stated the moisture from two weeks ago hurricane did little to nothing for second crop beans.  As well, I have heard that the heat in August, although perfect for drying corn down, had some bean plants dropping bottom pods, or not filling out top ones.  When combined with South America's current drought status, I expect beans to move higher until more of the SA crop gets in the ground, or US harvest picks up.  With today's price action, I recommended buying March and May beans with a sell stop to exit only at $10.33 March and $10.49 May.  This is a sales solicitation.  Corn is expected to create a trading range and wheat higher until it rains. ​

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Energy:

​Energy was violent in trading today.  Higher and lower multiple times leads me to believe this correction is coming to an end.  Especially if the rate cut is due to consumers unable to buy necessities.  We already saw diesel trade under gasoline, reflecting our weakening manufacturing and distribution industries.  With the rate cut, we may now see energy resume its down trend, simply due to lower demand with seemingly no energy policy in play to lower energy prices. 

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Bonds:

​Buy the rumor, sell the fact, continues to be played out to this day from when it was first spoken.  The Fed cut rates and bonds sold off sharply.  Equities rallied sharply, but gave all that back plus.  How will companies continue to produce like earning's of the past 3 to 4 years?  I think there is only one way, inflate and keep inflating.  Recall, after 10 to 12 years of negative growth, negative interest rates, and stimulus package after stimulus package, the US saw its first bout of inflation when the government pulled from thin air 3.5 trillion dollars and handed it out under the guise of Covid.  Consumers that never had money became hooked on the increased spending capabilities and continue to this day.  However, the inflation has subsided and consumers are now feeling poorer.  What does the government do? They begin stimulating again.  I expect the wave 2 of inflation continue through this year and maybe into next.  However, regardless of which candidate is elected, I think either will set in motion a wave 3 of inflation.  Trump from deflating commodity prices and whatever it takes to remove tens of millions of illegal immigrants, and Harris by printing more money for government spending, under the guise of inflation reduction.  The Democratic slogan was robbed from the used furniture stores adds stating, "the more you spend, the more you save".  So, I don't think that excessive government spending will save me any money at all, whether today or 5 years into the future.   ​​​​​​

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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.