“Shootin’ The Bull” End of Day Market Recap
by Christopher Swift
11/1/2024
Live Cattle:
In my opinion, on Friday, significant trading volume led to massive volatility in multiple markets. Cattle were not an exception, showing a great deal of volatility and price movement this week. Monday and Tuesday of next week are expected to be highly volatile as traders, producers, and consumers engage in window dressing and strengthen their positions before the election.
This week’s price action deviated a bit from the norm. Futures sold off sharply while cattle feeders bid for inventory, creating a new high for the feeder cattle index. The significant divergence this week has seemingly been quite beneficial to producers with hedges. The situation of cash being higher and futures lower allows for taking advantage of both sides.
This week witnessed further increases in open interest, with seemingly few longs in a profitable position. The continuous build in open interest indicates a significant stance for both participants. That is, new longs entered the market at or very near the top of the known price range, while shorts sold at the top of the known price range, and by the end of the week, they received a quick reward. Whether it lasts or not, and whether cattle prices soar or plummet, it all comes down to who is willing to assume the risk and to what extent.
It is believed that living with the consequences of decisions is easier when marketing at or near the top of a known price range. How you manage risk assumption determines the derivative used or whether to use none at all. Although basis spreads have changed significantly, opportunities still exist for those seeking help in managing their risk. At this point, there seems to be plenty to manage.
The feeder cattle index reached a new high during this recovery from the decline from $261.88 to $239.53 this week. Currently, it is slightly above the 50% retracement level. Everything depends on the cattle feeder going forward. If they start to lower bids, the index will weaken. Boxes have already started to soften in anticipation of inventory needs being met for the upcoming holidays.
A reason for expecting lower bids is drought. Drought persists, and even with this week’s rain, it didn’t have a significant impact. I expect a slight increase in marketing numbers for November and December due to this factor.
I spent this week trying to convert variable costs into fixed costs. For feed, it was about owning the $4.60 July corn calls. The carry still suggests that the board is the cheapest place to store corn. In energy, it involved booking fuel, filling farm tanks, or owning call options on futures contracts. Diesel prices fluctuated greatly in the past two weeks. Traders pushed it up to the 10/25 high and then sold it off suddenly by Monday’s close. As of this Friday’s close, prices have already exceeded last Friday’s high. I still expect energy prices to rise.
I think it’s futile to predict much about next week. Friday’s unemployment report clearly showed how large government spending has become.
The private sector is believed to be reeling from inflation. Meanwhile, the government just keeps pouring out money in multiple different ways, such as forgiveness, credits, subsidies, and taking care of the feeding, housing, clothing, and cleaning up after countless illegal immigrants.
Lastly, as our analysis of the cattle market continues, I updated the August video with charts and the most recent information gathered to help decipher the next most probable move. That can be found.
