“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

​2/4/2025

Live Cattle:​

And even more processing capabilities are coming on line with today's JBS announcement of a $200,000,000.00 dollar expansion of their Cactus Texas and Greely Colorado plants. The processing capabilities continue to an extent that there are just not enough cattle for the hook space available.  Of the most interest has been the position of the cow/calf operations in beef and the dairy industries.  It is believed that both have been risking the potential birth from an old cow while taking no risks in selling heifers at all time historical highs.  This is what has been thought for some time, but an article I listened to this morning helped confirm this stance.  So, as stated multiple months ago, the industry has stopped liquidation and will most likely move laterally for the next year or so.  Packer margins are bad and I noted that two weeks ago posted a high in profit margin for fed steers.  Last week, with the same cash price paid as the week prior, profit margin declined.  Why? because feeder cattle price began to rise after the September low and have continued higher ever since.  Therefore, it appears that without a continually higher price for fed steers, the profit margin will continue to shrink with a potential break coming towards the end of June.  That is when the highest priced feeder, so far, will be slaughtered.  While I have no idea what the industry will look like in 3 more years, but my best guess is that vertical integration will have made leaps and bounds achievements, not much more cattle production, and most likely weaker consumer demand that may help to flatten the curve in beef prices. 

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Cattle feeders have an opportunity to own incoming inventory for quite a bit less than previous.  For those cattlemen tired of paying top dollar in the sale barns, why not own feeder cattle at a $12.00 discount with potential to own them $24.00 cheaper than at present?  I recommend cattle feeders buy the at the money call option in the month they will be placing cattle and selling a put option $10.00 out of the money.  This is a sales solicitation.  Basis is a great tool to decipher where to buy and sell.  Today, the price is the highest to market into.  In the not so distant future, cattle are priced dollars lower than at present.  

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The Moore Research seasonality is believed correlating well with recent market action.  If continues, then as this decline wraps up, a corrective rally will be anticipated into next week.  From the second week of February to the end of May, the seasonal tendency for fats and feeders is lower.  Consider this when looking at April and June fats.  These cattle will have been placed in time frames of ever increasing feeder cattle costs.  Therefore, the price of fats will have to be higher as well to offset cost of gain. If you have cattle on feed, I recommend you follow the seasonality and by the end of the second week of February, have an at the money put option on every head on feed out to June.  This is a sales solicitation.  

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​Feeder Cattle:​

​Backgrounders have found themselves in a tiger trap again. The positive basis is a $12.00 wide trap for which when buying a put option, deepens it further by the premium paid for the option.  As only cattlemen dictate the price of cattle, and any participant with enough money to meet the margin call requirement dictating the price of futures, it appears that cattlemen have become much more bullish than everyone else.  While basis is wide, it can get a whole lot wider were there to be something even more negative to impact futures, before the cash market could respond. I recommend cattle feeders use this opportunity to obtain cattle in the future at a lower price and for backgrounders to wait for a narrower basis to trade from.  A problem can be that basis narrows with cash moving lower, relieving some of the basis pressure, but not offering any higher price in futures to benefit from.  With most all of the last rally in January having been taken away, and a great deal of increased market participation in both cash and futures, there are most likely some new owners with a lot of explaining to do.  Via March futures, the start of January was a close of $266.20 with today's low $267.17 and close at $268.75.  That decline pretty much wiped out the profits from January in 5 days.  

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​​Class III Milk:

Milk is higher today.  I expect milk to continue higher as dairies appear in no hurry to gear up for expansion of dairy cows.  If you would like to know how to price milk for future delivery, contact us. Note it remains in an inverted carry.  

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Corn:  

​Corn and beans were higher today with a note from Steve Freed about new money coming into the grain markets.  As today's higher trade resumes the previous up trend, I expect corn and beans to continue higher.  The crush spread in beans favored meal today.  I expect this to jockey back and forth, but if you need bean meal for feed stuffs, buy the at the money calls today.  This is a sales solicitation. 

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​​Energy:​​​​​​

​Energy has been all over the place today due to combating tariff's with China. I continue to expect energy to move higher as it appears to move in that direction on its own, and moves lower to sharply lower on dramatic news.  Diesel has stalled at just above the 50% retracement level from the rally that started 12/6/24 and about $.17 from the mid-January high.  I recommend topping off farm tanks and booking some spring fuel at this time. ​

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Bonds:​​

​Bonds were able to get plus on the day, but traded lower before accomplishing such.  Inflation continues.  Gold made new historical highs this week. Copper has firmed since the start of the year and both coffee and cocoa remain at historical highs.  I continue to try to fit the pieces together of how much supply distortion the actions of the previous administration caused.  It is not easy as I don't think we know half of what was spent and on who. ​​

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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.