June 5, 2024

 CATTLE FOR THE PAST 50 YEARS---

HOW, MORE THAN ANY MARKET WE TRADE,

DO ALMOST ROUTINELY GO STRAIGHT, STRAIGHT DOWN…

NO MATTER HOW BULLISH THEIR “FUNDAMENTALS” SUPPOSEDLY MIGHT BE.

After crashing hard with the 2020 Covid commodity markets wipe out, Cattle prices then started a 3 year bull market that culminated in Live Cattle prices rocketing to an all-time high of $1.90 per pound in June, 2023, with their companion contract, Feeder Cattle, making their record high three months later, at $2.54…These stratospheric prices were accompanied by the usual at-the-top “bullish fundamentals” story, noting that the size of the cattle herd had dropped to “the lowest numbers in 73 years,” which IS an actual fact…BUT…only serves to explain why we HAVE reached these levels, and I assure you, has NOTHING to with where the balance of supply and demand will take prices a year from now…And while I am sure there are any number of cattle people out there who will vehemently argue, “He doesn’t know what he’s talking about. There just ain’t enough cattle,” I’ll offer that EVERY top I’ve ever seen in commodities was made with EVERYBODY in that particular industry pretty much saying, “We’re gonna run out of it!”, which btw, was exactly what every ag analyst on the planet was screaming two years ago when Wheat was $14.00 (but headed for $6.00), Corn was $8.00 (headed for $4.00), and Soybeans were at $17.75 (headed for $11…so far). I could get really long winded as to the logic of why, when there is “none left,” IS when markets DO top out but am going to leave it at saying: I HAVE SEEN IT 100’S OF TIMES (LITERALLY), AND THAT IS THE WAY THE  MARKETS WORK…AND AM FIRMLY OF THE OPINION CATTLE HAVE LIKELY SEEN THEIR HIGHS FOR MANY, MANY YEARS TO COME…AND ARE BEGINNING THE SAME 20-25-30% DECLINE THAT HAS BEEN THEIR POST BULL MARKET NORM FOR THE PAST 50 YEARS.

And in reality, for those of you who have actually been around cattle for decades, you’ll know that there is no other market that so routinely goes from boom to absolute bust…which I believe is a function of this being a live animal that requires an owner’s capital and firm commitment for several years, minimally, to breed, calve and then raise a steer up to its 1200 pound slaughter weight…AND, importantly, when that steer IS ready for slaughter, it CANNOT be stored away in hopes of better prices…IT HAS TO BE SOLD…with all of the above contributing to the fact that: CATTLE PRICES HAVE A VERY DEFINITE AND FAIRLY ROUTINE TENDENCY TO GO STRAIGHT UP…AND THEN STRAIGHT BACK DOWN…WHICH IS DOCUMENTED ON THE TWO CHARTS AND SUMMARY TABLE FOLLOWING.

What I want to show you here, from a visual and statistical standpoint is HOW OFTEN Cattle prices DO experience SHARP SELL OFFS…For visibility’s sake, I’ve split the past 46 years of Cash Prices for Live Cattle (when a steer is ready for slaughter) into two charts, noting two things statistically: 1. How big the sell off’s are, in percentages, and 2., how quickly the declines took place…Aside from the stats, I’m pretty sure, just by eyeballing the charts, it should be obvious that Cattle prices DO frequently  “go straight up, then straight down.”

Here is a summary of what’s on those charts…In particular Do note the repeated size of the sell offs and that in most years there is at least one significant reversal to the downside…

Significant Price Declines

in Cattle  Prices since 1978

I also note that in today’s hotter and hotter money world, the swings HAVE gotten bigger in the past 10 years…during which the average downturn has been 23%...And I see ZERO reason to expect anything smaller than that when the next BIG ONE hits.

It is also worth noting that these percentage changes are from the CASH market…which tends to be more “subdued” in its movement than FUTURES, which, as a function of massive speculative funds, definitely do move MUCH bigger, and faster, and to greater extremes than actual cattle prices themselves.

Getting to the present…

This is how I view Dec 2024 Cattle...that the past year has been nothing but a 10-15 cent wide consolidation...with the entire contract basically just sitting here at stratospheric price levels...and absolutely bound to go SOMEWHERE BIG before it expires...And my bet is that it WON'T be higher.

TO ME…THIS NEXT CHART SAYS IT ALL…

Buy Live Cattle Puts

 Here are put options I would recommend…right here, right now.

Buy Feeder Cattle Puts

In the interest of not overloading you with even more data, I’ll just say that all of the above also applies to the Feeder Cattle contract…which essentially has the same historical tendencies and percentage declines as Live Cattle…and I ABSOLUTELY RECOMMEND SHORTING BOTH MARKETS TOGETHER…BUYING “UNITS” OF 1 PUT IN EACH.

Although it absolutely does not mean I will be right…and if I am wrong, it can mean losing every dollar you invest…but I view being short cattle here as the BIGGEST NO BRAINER EVER...that from right here, right now, into the most recent two month rally (again within a giant year long consolidation), making money is just a question of executing a game plan, which is basically to buy the puts and then forget them, to begin with, for 2-3 months. Of course, nobody is going to do that…but that IS how I believe this trade should be handled.

Again, for the past year, the daily charts of these two contracts are nothing but wide-swinging consolidations AT RECORD ALL TIME HIGH PRICES…and I remain convinced that by some time in the next 6-12 months…what we WON’T see is sideways, or up…and that both Feeder Cattle and Live Cattle will have undergone MASSIVE sell offs.

Get in touch if you want to know more…I honestly don’t think it gets any better than this…LOTS of time, big leverage…and simply as a consumer, KNOWING that beef prices at the supermarket have just gotten beyond stupidly expensive…not to mention that “80% of Americans now think of fast foods as a LUXURY?”

One more time…I THINK BEEF PRICES HAVE NOWHERE TO GO BUT DOWN…A LOT.

Thanks,

Bill

770-425-7241

866-578-1001

All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.

The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Live Cattle, Feeder Cattle