“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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4/5/2024

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Live Cattle:

In my opinion, the bird flu was the primer that set off the powder charge consisting of poor margins and exceptional input costs that caused cattlemen in every sector to step back for just a minute.  The formation of a price triangle, to mark time for the building of beef production, continues to unfold.  I expect more of this as the industry is in a discovery phase.  The industry is discovering what some will and some won't pay for cattle.  It is discovering that alternative meat proteins and outsourced beef can help to mitigate some of the loss of the beef herd.  Discoveries are being made as to how big one can grow a steer.  Probably more than anything, we are discovering what the consumer will pay for beef.  With boxes having dropped over $16.00 from its peak the past two weeks, it appears we are discovering the consumer has a limit to what they will pay.  So, it stands to reason that while these factors are in discovery, the price contracts until definitive fundamentals begin to move in a direction. Open interest plummeted this week as futures traders have abandoned providing premium to producers. Especially in the feeder cattle market, where it was abundant.  Not any more though as basis swapped dramatically in the feeder cattle to positive in the front two months, and slammed the window to just a crack in the back months. 

Grains have my undivided attention this week as information leads me to expect a significant decline.  Two factors of significance are that farmers own a record 61% of the March 1 stocks, as well as, the comment was made that this year's crop will test storage capacity.  This led me to make recommendations to hedge some new crop corn and beans.  We put out specific information and details on these strategies if you need some help.  As well, I recommended sales up to 50% of projected yields.  I did so under the impression that "if" the price went higher, one would be able to increase their average price.  However, "if" lower, it may be the highest price marketed for the year.  

Lastly, bonds, equities, and energy had my attention as well this week. The bond market appears to be completing a major wave 2, and is currently reflecting the bout of inflation we are in. With this bout of inflation expected to curb the spending habits of the consumer, expectations for lower rates should be around the corner.  The equities bubble is believed to have popped.  New highs will suggest otherwise, but until then, I believe I heard the pop.  Energy continues to soar.   The poor energy policies of the US and middle-east conflict is expected to keep energy moving higher.  There are no tools left in the tool box for this administration to pull out.  The SPR's are being depleted and I just don't believe this administration is looking out for the best interest of its citizens.  Proof of such is a close as your television showing millions of illegal immigrants walking across borders, or some being flown across our borders.  The subjection of US citizens to every law, mandate, and rule written, only to allow others who never participated in the creation of, to live outside of, is evidence enough.  Long way around the barn, but the US consumer is being subjected to increasing inflation almost daily, while others are given every aspect of life, paid for by you and I. Next most probable move is for consumers to slow spending to a point in which it impacts the economy.  Factors of supply and demand have seemingly been weighted towards the supply side being short of cattle.  I recommend you adjust your focus towards the demand for beef, as the supply factors are known and believed have been traded thoroughly in the markets.  

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Corn:

My analysis suggests it time to market a percentage of your new crop.  Not only are grains and oilseeds in a bear market, it appears production of both will be excessive. Information this week of farmers owning a record 61% of the March 1 stocks leads me to expect a need to market inventory.  As well, the excessiveness of last years crop, when combined with this year, suggests that storage capabilities will be tested. With corn near full carry and a way to go in beans, there are few aspects predicting a bull market.  Hence forming strategies that provide leeway and predetermined downside profit potential are believed needed now to stave off potentially lower prices.  For December corn, I recommend buying the December $4.70 put, selling the December $3.90 put and selling the December $5.50 call options.  This is a sales solicitation.  The goal is twofold.  If prices move lower, you have a window of profit potential between the two put option strikes minus the full premium paid for the spreads.  The spread is an $.80 window with premiums currently at approximately $.15&1/2.  Were the underlying futures to exceed the $3.90 strike, your position would then go flat as the window has been fully vested.  If prices move higher, then you have an $.80 window of opportunity to market cash corn were the levels of the short call strike price achieved. You would then assume a loss in the options spread position and able to market your cash inventory at a higher price.  This strategy is fully margined and will produce limited profit potential and unlimited risk.  I view the price range between $4.70 and $4.90 December corn as one to begin laying in these trades.

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For November soybeans, I recommend a different strategy.  Due to the price and the potential for more acres this year planted, the downside is believed what needs to be protected, more so than attempting to achieve a higher cash sale.  Therefore, I recommend buying the November soybean $11.80 put and selling the $13.00 call option.   This is a sales solicitation.  Were beans to move lower, you have unlimited profit potential to zero.  Were beans to trade higher, you have an opportunity to market beans $1.20 higher than today.  Marketing into the future leaves one vulnerable to the unknown and produces anxiety as to whether you made the right choices and can you live with those choices.  In my opinion alone, making those choices while not under duress may improve your marketing stance that allows you to make further decisions if become applicable. If having to work under duress, all you are attempting to do is relieve the pain of your poor risk management plans. So, if you have to live with your decisions anyway, make them when conditions are more favorable than not.  The most recent move higher is believed to be more favorable in making marketing decisions than in the first quarter.  These are not intended to be speculative trades with full intentions of you physically marketing inventory at the higher levels of short call strike prices in either corn or beans.  

​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.