“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

10/2/2023

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Live Cattle:

Volatility is about all that has transpired the past two days of trading.  I anticipate more volatility, simply due to the volatile nature of our current economic environment.  Through the duration of the next 5 months, cattle feeders will have to see the price of fat cattle increase, or the cost of gain plummet, in order to keep from exponential losses.  That 5 months starts last week.  So, the cattle feeder is facing not only the potential of breaking the consumers "resilience" to spending, but mounting losses without higher fed cattle prices, and the potential for even fewer cattle to feed next year.  While I have traded through multiple cattle cycles, this one is different in that the level the herd has declined too, and potential for expansion under economic circumstances, leads me to believe that the producer won't come close to taxing packing capacity or overwhelm feeding capacity.  The last cattle cycle took place when money was being thrown from helicopters and quantitative easing was the newest buzz word to hit the streets.  Rates plummeted and every financial package that could be presented to the public was welcomed with open arms.  That just isn't the same economic environment.  It is literally the exact opposite.  The money that was poured out through Covid, is being gobbled up and being placed on deposit.  With bonds at new contract lows today, the Fed is believed twisting the hot knife a little in the side of the economy.  Open interest continues to decline.  The price is at the top, and expenses not slowing.  Supplies of beef are believed being mitigated by the slower slaughter pace.  This has kept the price of beef extraordinarily high to the consumer.  The combination is believed to have somewhat slowed beef demand, or at least some shifting among the varying cuts.   With the slower slaughter pace, and improving weather, cattle feeders are anticipated to throw as many pounds as possible on a frame. All they need is a big break in corn, that may or may not come.   

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Feeder Cattle:

Backgrounders are believed now facing a cattle feeder that is not nearly as willing to bid any price, as they were over the summer.  I believe the top is in, and that the shift felt last week will go to expose that cattle feeders paid too much for incoming inventory.  Cattle feeders need to find some margin, and with it questionable about feed costs, and little they can do to impact the price movement, the feeder steer is where they could make the most headway.    

Corn:

 Corn jumped off a ledge on Friday and hit a trampoline Monday morning.  Wheat did the same and beans made a gallant attempt to get plus and stay there.  A lot of analyst believe the harvest lows are being made.  Potentially they are, but that doesn't necessarily make the price go up.  Demand doesn't have a real bright spot for corn, and exports are even less attractive.  So, one has to consider what to do with this years corn crop and proceeds from.  If you have on farm storage, there are believed opportunities available to you through basis, as well as the price.  With on farm storage, you can set the price and leave basis open for potential further benefit.  While this will be a perplexing year for farmers to consider how to market corn, it is worse for those procuring it.  One, it is already in full carry, suggesting you will be paying a higher price in the future, and two the price today continues to be about one dollar higher in corn than cattle feeders need to come close to breaking even on this summer's feeder cattle purchases. The cattle feeders need a break in corn and the farmer does not need a penny lower.  I remain negative on corn and wheat, with beans anticipated to firm and trade higher. 

Energy:

A weakening Chinese economy, Russia and the Saudi's manipulating production, and the US energy policy nonexistent, we could be on the verge of a massive sell off in energy prices.  As China is a dominant user of fossil fuel, and are weakening, the US a dominant user of fossil fuel, and are already weak and wanting fossil fuel gone, is seems that were Russia and Saudi Arabia to see the writing on the wall, they would step up forward sales while the bull market is still intact. With today's low only 9 tics from the 9/26 huge reversal low, it suggests that the world may be weakening.  I recommend not topping off farm tanks and going hand to mouth.  The energy sector remains in an inverted carry charge.  Therefore, selling further into the future garners a lower price than today.  That won't matter if the tide turns, as well, would most likely revert back to a carry market if Russia and the Saudi's try to get as much oil sold as quickly as possible. 

Bonds:

Rates soared higher again today with the bonds making new contract lows.  There is no stopping them at the moment as those who are long bonds are being raked over the coals for further roasting.  The overwhelming costs that cities and municipalities are incurring can't be sustained without further Federal aid.  Companies in these cities will continue to close as being robbed from is one thing, but having to pay an employee to watch you being robbed is a little more than even the most woke companies can stand.  Far worse than this is the governments that are assigned to create laws and then enforce them.  The lack of consequences, that tend to be associated with criminal activity, is seemingly encouraging the behavior.  Hence with the lack of rule of law, the consequences that go along with, I see higher interest rates, and potentially a pull the rug from their feet move in commodities.  Recall, the Fed thinks poorly on food and energy and believe that these commodities are some of the problem they created.  So, don't be surprised to see actions taken that would impact commodity prices more than at present. 

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