“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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4/9/2024

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Live Cattle:

Volatility is high and unknowns abound.  That about wraps it up for the cattle market. I think less about supply and more about demand as the supply knowledge is believed known and has had ample time to be disseminated in the markets.  Demand can change quickly and with a belief that beef demand remains robust, if it begins to stabilize, or worse, decline, I would fear cattle prices would suffer as well.  The discovery process continues right along.  I see nothing to change this as consumers want beef and everyone is trying to produce it.  As challenges are seemingly always met by the American farmer/rancher, there is no reason to think this time will be different. I expect the dairy/beef cross to continue to improve the quality of meat from dairy cows, with more imports, less exports, and high retail prices, rationing beef to the consumer.  These factors are expected to continue in the attempt to ration beef and cattle, until increased production of can be achieved.  With this belief, I expect prices to contract, forming a triangle for which prices continue to trade within.  As most fat cattle contract months have tested or exceeded the bottom portion of the triangle, the next most probable move would be to test the upside of the triangle.  Open interest continues to plummet.  This does open the door for an increase of, but I am unsure where the excitement of providing premium to cattle feeders would come from as they are seemingly either losing a great deal of money per head, or they are within a vertically integrated supply chain. 

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Feeder Cattle:

Cattle feeders are not believed profitable.  Backgrounders have lost significant margin spread between calf/stocker price and feeder cattle, and now the premium the futures once held.  I think it will be difficult to have traders assume so much of your risk again.  Maybe they do, but if you don't use it, then it makes no difference.  What I expect is a return to or just shy of the top of the triangle.  When is the question.  With April being a seasonally lower time frame, I think it as easy we see further selling than roaring buying. At present, the high made on April 5, per respective contract month will be the point which interests me most.  A trade above and it may appears as if the upper trend line will be tested.  Until then, I would expect lower trading.  At present, with short calls covered, I see little to do.  A trade $5.00 to $10.00 lower would have me wanting to sell puts, in an attempt to collect more premium.  Until then, although open position equity is at jeopardy, I'm not sure that I want to relinquish some of the puts owned with a $20.00 intrinsic value to them.  This provides a lot of leeway to let the market cook for a while to see where prices may move from here.  Lastly, the below came across my screen this morning.  Of all the agencies that do nothing, the government cuts USDA when they don't want to print any more money.  

NASS is the federal statistical agency responsible for producing official data about U.S. agriculture and is committed to providing timely, accurate and useful statistics in service to U.S. agriculture.  Of the three necessities of life, food, shelter and water, NASS provides critical details on the commodities that make up food and shelter.  Seemingly, it would be crucial to have this information readily available and continually updated in order to help produce a secure food production system.  Unfortunately, due to poor government mismanagement, of literally everything, certain reports are being cancelled.  While this is certainly not the first time, and most likely not the last, it is just another slap in the face of every producer out there by every government official that helped to promote this issue. 

NASS discontinues select 2024 data collection programs and reports

Issued April 9, 2024, by the Agricultural Statistics Board of the U.S. Department of Agriculture, National Agricultural Statistics Service. For more information, contact Troy Joshua at Troy.Joshua@usda.gov or (202) 690-3222.

The USDA’s National Agricultural Statistics Service (NASS) is canceling the July Cattle report and discontinuing the Cotton Objective Yield Survey, as well as all County Estimates for Crops and Livestock beginning with the 2024 production year. The decision to discontinue these surveys and reports was not made lightly, but was necessary, given appropriated budget levels.

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Hogs:

Hogs were higher.  I have not seen an index reading today.

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Corn:  I recommend you have these positions on prior to the release of the WASDE report.  This is a sales solicitation. 

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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.  

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Energy:

Energy trading was lower today.  Volatility was high again, but prices were lower.  I expect this downward pressure to be a correction with further upside price movement. 

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Bonds:

Bonds were higher.  I recommend being long bonds with a sell stop to exit only at 116'17 September.  This is a sales solicitation.  

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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.