“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​12/6/2024

Live Cattle:​ 

In my opinion, I think the situation is as simple as there are too many cattle producers for the number of cattle available.  Similar to musical chairs, there are only so many chairs and a lot of people that want to sit in them.  Cheap and available feed, along with filling wheat pastures, has created a flurry of buying that has yet to subside.  This week will see new historical highs for just about every weight category, but fats. Margin squeeze is taking place at every turn with seemingly a business plan of continuing to buy until there are no cattle left, or no one to bid against.  This, in my opinion will help to further vertical integration for which some of today's issues are believed due to a percent of inventory off the open market.  The squeeze to the packer will be interesting as it will be expected they do something to shake up the margins.  There really isn't much squeeze in the fat market with 12 million head on feed and elevated weights, yet that is where the most interest is for commodity traders long the live cattle futures.  Commodity funds and speculators have piled into long positions for which as best I can tell, they have been as much as a $3.00 winner and $3.00 loser, depending on what day you look at prices from the October 21 close.  None of this has seemingly been of benefit to the fat cattle market, other than providing cattle feeders an opportunity to use futures at not a terrible positive basis.  The squeeze is real for cattle feeders when it comes to bidding for incoming feeder cattle inventory.  With feeders starting at $72.00 plus over fats, and there no margins at all, risks assumed are believed 100% to the new owner.  Not much different for backgrounders as some of the light weights are selling for the same dollars as their heavier counterparts.  Hence, growing them has to be nearly for free.  All of these factors are culminating at historical highs for just about every weight category.  

This week, traders battled the screw worm and towards the end of the week, further outbreaks of bird flu.  USDA will begin testing all milk in multiple states with seemingly California leading the way in outbreaks.  Due to the beef/dairy cross, and known to have been found in beef of a dairy cow in May of '24, it is possible the testing moves to beef as well.  The screw worm is an issue, but seemingly not a very big concern due to ability to treat animals before they cross the border.  Hence the quarantine time limit may not be for much longer.  With seemingly no profit margin currently available, the commodity funds believed to be holding an exceptionally large long position, and prices at historical highs, one is recommended to expect volatile, if not violent trading the next two weeks before the abbreviations of the holiday's reduce volume of trading.  

With a belief that current highs, even if a little higher, are going to be the highs for fall 2025 contract months, cow/calf producers are in a position to lock in next year's calf crop at currently the highest price ever.  Decisions on whether to forego the proceeds from heifer sales, to hold them back to produce more supply, for which tends to drive prices down, is not going to be easy.  I continue to believe that it will be difficult to see the cow herd expand anytime soon, with great expectations of holding it steady through 2025.  Few, any longer,  take into consideration the consumer, simply due to their resilience to the higher prices of beef has yet to curtail demand.  I not only listen carefully to what the incoming administration is going to do, but believe they will attempt to do as much to bring down inflation as possible.  How cattle/beef will perform in that environment is yet to be seen.  At present, we can't get the outgoing administration out fast enough to stop giving money away!  Energy ended the week lower.  I continue to expect energy to trade higher.  Bonds were higher on the week, lowering rates slightly.  The US dollar is believed in a correction of the stout up move in October and November.  I expect the dollar to continue to trade higher as it tends to be a signal others want to conduct business in the US again. 

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.