The cash market has been breaking down the past month as packers have regained control of the price action, in my opinion. The Equity markets have been under pressure as traders worry about economic conditions. Cattle and Feeder cattle are still relatively close to their all-time highs as the rest of the commodity markets for the most part is well below their extremes. This seems to put cattle under the microscope as traders have been taking a look at the cattle markets from an inflationary outlook and want to bring food inflation down. They seem to using the cattle markets as a proxy for food inflation, in my opinion. Even as fundamentals(supply) show bullish tendencies, the bigger picture has overcome the potentially tighter supplies. Reverse migration is nearing as birds leave the north for the warmer southern climate. Will the industry use this as a way to tamp down price if dairy cows become infected again as they did in March/ April. Cattle has broken below trendline support, settling under it and below support at 175.95. It is below the short and long-term moving averages.
Regardless of how much the Fed cuts in September, the national debt continues to rise at unsustainable rates. I believe the fiscal crunch remains a very real risk. The ten-year may remain around 3.8-3.9% for a while, but as the deficit continues to pile up, the risk of a real financial crisis could grow regardless of who wins the election. The new GDP numbers make no sense in our opinion and are higher than actual. It is not feasible to have cut 818,000 jobs supposedly created and still have a 3% GDP growth in the same period. After the obvious false reporting of jobs for all these months, we don’t believe there is a reason to believe the GDP number as being any more accurate than the jobs numbers. There is no way to know what reality is now, but with the economy slowing in many areas, and unemployment rising, it seems unrealistic that GDP is growing so well. Slowing economies do not grow at 3%. Call to action below.
Trade Idea
Buy the Dec 2024 Live cattle 170.00 put
Sell the April 190 call 190.00 call
Cost to entry is even money plus trade costs and fees. LEJ25C190:Z24P170[1-1]
Risk/Reward
There is unlimited risk here in this live cattle strategy as is short naked calls out to April next year.
Submitted by Sean Lusk and Ben DiCostanzo
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