“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

3/29/2023

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Live Cattle:

A pretty lackluster day considering traders were able to put nearly a dollar on today.  It is still too early to tell if traders are going to push for new contract highs.  I haven't see much increase in beef or consumer activity that would suggest packers are willing to bid higher.  There is a mind set that suggests cattle can't go down, due to supply.  While there is no questioning the lower supplies, I think we will see stages of higher and lower trading, but without a negative event, I doubt a bear market.  As we see April and June move back towards contract high, and the seasonal tendency lower for both into the end of April, I recommend you revisit your hedge positions and see if there is anything you need to do while nearing contract high.  The seasonal tendency for the June contract is to trade lower into the last of April, followed by a slightly higher tendency with the August contract benefiting the most from a summer rally.  With this knowledge, it leads me to believe that the current rally could well be a B wave rally with a C wave decline yet to materialize.  Even if a new contract high is made in the June contract, if it is not by a significant amount, the B wave could be an irregular, and still produce a significant C wave decline.  So, you are rarely without a hundred different considerations to contend with in your decision making process.  This is one that I recommend you keep in the front burner.  I recommend buying the at the money June put when or if June futures trade between $161.00 and $163.00.  This is a sales solicitation.  Were the purchases of puts made above the current contract high, I may look to sell calls against them.  If you look back at December, January and February, the lower placement, combined with slower slaughter pace and heavier framed animals, it does not appear that when in the April through June time frame that the number of cattle on feed will drop below 11.5.  Were there to be a huge marketing number, then we may see some further declines in cattle on feed.  At the moment, it doesn't appear that retailers want to raise prices or consumers are gearing up to consume more or willing to pay a higher price for.   

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Feeder Cattle:

Futures traders are on a tear to widen basis.  I think this will be extremely important to watch as were fall months of feeders to start setting new contract highs, the basis spreads will return to levels believed difficult to achieve from just one side of the basis equation moving.  As in, I think it may be difficult to push cash to the $220.00 or $230.00 level this year.  The reservation of cattle feeders to bid higher, in the leaps and bounds most wanted, shows that they are attempting to hold margins as well.  Profits to cattle feeders the past three weeks have increased.  The margin balance is believed fragile between retail meat sellers, packers and now, feed yards.  None want to see it upset, as a steady profit is believed desired over the up and downs of make or break.  I can see backgrounders with grass bidding up lighter weights for inventory, but other than that, I don't foresee cattle feeders jumping out to fill pens with high priced cattle for the fall of the year. Not much at the moment would signal a revival of increased consumer spending going forward with recession on one hand and inflation on the other.    

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Lean Hogs:

Hogs ended lower today.  The index was down $.32 at $76.25.  June made as close to a .618% retracement as you could ask for.  I anticipate hogs to trade higher from here.  I recommend buying June hogs with a sell stop to exit only at $87.77.  This is a sales solicitation.  With the pork cut out having dropped dramatically recently, and the $14.00 drop of futures, I just don't think pork, or the hog market is in that bad of shape.  Especially competing with high beef and poultry issues. The likelihood of China coming into the US market is not very good.  I think the work done within the industry of culling the herd will help more than anything and I have not heard of any expansion to take place yet.  With bean meal still hovering at just under $500.00 per ton, I can see why.  With feed costs anticipated to move lower, this may help some. 

Corn:

Grains and oilseeds were mixed today.  Most everything saw both sides of trading today.  I think traders are gearing up for the intentions report on Friday.  Today, I recommended marketing more old crop beans and corn.  The premium to the May contract and most recent rally, should offer farmers some relief from last weeks low.  I recommend selling December corn at $5.85 with a buy stop to exit only at $6.08.  This is a sales solicitation.  I recommend selling November beans at $13.14 with a buy stop to exit only at $13.40.  This is a sales solicitation.  I continue to believe that corn and beans are making a correction of the initial moves down with the next most probable move back to the downside. 

Energy:

Energy was mixed today with crude leading the way and gasoline right behind.   Diesel fuel has been the spread against market for gasoline and crude.  Why, I am unsure, but most likely the increase of driving through spring break.  Gasoline is up about $.35 the past couple of days.  That has been reflected literally instantly at the retail pumps. By the close today, all three were down on the day with diesel fuel down the most.  Coming into spring, one would anticipate industrial usage of diesel to be up.  More ships bringing in goods from overseas and trains coming around the bend should all be up.  However overseas freight is down as are rail loadings of both cars and intermodals.  Today's close of diesel fuel puts it in a position that I would call a reversal in just a few more cents lower.  A close of May under $2.50 would lead me to believe a down trend is forming. 

Bonds:

Bonds were lower through the day, but only closed a few tic's lower.  I anticipate bond prices to move higher.  Equities were higher today, but still well within their current trading range. A slightly higher trade in equities will not surprise me, but the way this rally started off leads me to believe it will be short lived. 

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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.