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Santa Claus left stock-market investors with a proverbial lump of coal for a third straight year but once again delivered Christmas cheer to the cattle market.
An April live cattle futures contract purchased on Monday, Dec. 8, and exited on Jan. 2 produced a gain of 9.275 cents a pound, for a profit of $3,710 per contract. That marks the 18th straight year that such a trade initiated on Dec. 7 (or the next trading day if that date falls on a weekend) and closed 17 days later has produced a profit, noted Dave Whitcomb, head of research at Peak Trading Research, who has called the phenomenon the strongest commodity trend on the planet. (Pro Farmer wrote about the trade back on Dec. 8. See: A Santa rally for the cattle market? It’s the strongest trend in commodities.)
The cattle trade has a stronger recent record than the more famous “Santa Claus rally” popularized by the late Yale Hirsch, founder of the Stock Trader’s Almanac, in 1972, to describe the tendency of the S&P 500 to rally in the final five trading days of a calendar year and the first two trading days of the new year.
The S&P 500 ended the period Monday down 0.1%. If extended to other indexes, it wasn’t a total wash, with the Dow Jones Industrial Average booking a 1.1% rise, while the Nasdaq Composite lost 0.7%.
Hirsch viewed the phenomenon as an indicator rather than a tradable strategy. If Santa delivers, that tends to spell good news for stocks in the new year, while a negative stock-market return over that seven-day trading period indicates the opposite. He summed it up in a memorable and oft-quoted phrase: “If Santa Claus should fail to call, the bears may come to Broad and Wall,” a reference to the New York Stock Exchange situated at the intersection of Broad Street and Wall Street in Manhattan’s financial district.
That said, a snub from Santa doesn’t guarantee doom in the year ahead. Stocks booked solid annual gains in 2023 (+16.4%) and 2024 (+23.3%) without St. Nick’s blessing.
Whitcomb notes that cattle futures are closely correlated with the S&P 500, so the stock market’s ability to again defy the gloom associated with a missed Santa rally could be important. Other seasonal factors that account for the cattle market’s strength over the 17-day trading period include holiday demand for beef, including top quality cuts, as well as tighter supplies due to weather and other factors.
Ag Economy Barometer falls in December…Farmer sentiment weakened slightly in December, with the Purdue University-CME Group Ag Economy Barometer Index falling 3 points to a reading of 136. The weakness was due to a modest fall in producers’ long-term outlook, with the Future Expectations Index declining 4 points to 140. Meanwhile, the Current Conditions Index, at 128, was unchanged from November. Angst about prospects for U.S. soybean exports amid increasing competition from Brazil contributed to a slightly weaker outlook for the future among crop producers.
Among other highlights:
- The financial performance index rose 2 points to 94, with more producers saying they expect this year’s farm financial performance to be about the same as last year’s. The Farm Capital Investment Index also rose 2 points, though 60% of producers still said it was a bad time to make a large investment in their farms.
- The Short-Term Farmland Value Expectations Index and the long-term index were virtually unchanged, with both rising just 1point compared to November. The small increase left the short-term index at 117, which was 11 points above its most recent low in September and 7 points higher than a year earlier. The long-term index reading of 166, a new record high, was 20 points above its most recent low in September and 11 points higher than a year ago.
- Confidence in the use of tariffs to strengthen the U.S. agricultural economy showed some erosion. In December, 54% of respondents said they expect the use of tariffs to strengthen the agricultural economy, down from 58% and 59% in October and November, respectively. Farmers who are uncertain about tariffs’ long-run impact rose to 19% of respondents in December, up from 17% a month earlier. The percentage of producers who say they are uncertain about how tariff policy will affect the agricultural economy in the long run has more than doubled since this question was first posed in the spring.
- However, when asked if the U.S. is headed in the “right direction” or on the “wrong track,” three-fourths (75%) of respondents chose “right direction” in December, the highest percentage recorded since this question was first included in barometer surveys starting in July.
USDA’s new chief economist…Agriculture Secretary Brooke Rollins on Tuesday announced the appointment of Justin Benavidez as USDA chief economist. He succeeds Seth Meyer, who served in the rose since 2021 overseeing USDA’s economic forecasting and analysis, including leadership of the World Agricultural Outlook Board and the widely followed World Agricultural Supply and Demand Estimates (WASDE) report. Meyer now serves as director of the University of Missouri’s Food and Agricultural Policy Research Institute.
Benavidez previously served as chief economist for the majority staff of the House Agriculture Committee, where he provided economic analysis on farm bill policy, commodity markets, and agricultural legislation, USDA said in a news release. Before his service on Capitol Hill, Benavidez worked as an agricultural economist with Texas A&M AgriLife Extension, focusing on farm and ranch management, production economics, and policy analysis. He holds bachelor’s, master’s, and doctoral degrees in agricultural economics from Texas A&M University.
Ethanol blend rate tops 11% for first time…Ethanol accounted for 11.06% of the nation’s gasoline in October, marking the first time in history that the monthly ethanol blend rateS has exceeded 11%, the Renewable Fuels Association said Tuesday, citing data from the U.S. Energy Information Administration. The RFA said the record-high blend rate reflects the growing use of E15 and flex fuels like E85. The trade group also took aim at the notion of a “blend wall” that prevents ethanol from making up more than 10% of the gasoline pool. “The numbers also prove that the fictitious ‘blend wall’ is nothing but an imaginary barrier created by those who oppose American-made renewable fuels produced from American-grown crops,” said RFA President and CEO Geoff Cooper.