“Shootin’ The Bull”

by Christopher B. Swift

​6/05/2025

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Live Cattle:

​Further reshaping of the cattle industry today.  The garnering of more market share continues with the rise in price.  Price spreads widened between contract months with fronts $1.00 to $1.50 higher than back.  With feeders on the front end sharply higher, today's futures action in fats only goes to widen the spreads between starting feeder and finished fat, and a lot more basis spread to contend with in the back months than front. 

 

Hindsight, and the positive basis, is believed emboldening some to forego any form of downside protection.  Frustrating margins calls, the clarity of what could have been done, and talk of "you ain't seen nothing yet" is believed impacting cattle feeders decisions.  My opinion alone is that there is most likely never a better time to be using what is available to you.  Although managing risk at steep discounts, and seemingly foolish under current fundamentals may seem unnecessary, commodity markets are historic in reversals at the most inconvenient time. 

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The higher price has already caused shifting in consumers from cuts to the grind.  For producers, holding cattle back to put on more pounds, due to margin discrepancies in replacements, has been their move, and packers slowing slaughter pace to keep box prices elevated.  Other shifts have been the increase in beef/dairy cross and significant imports of lean trimmings.  Higher prices tend to bring innovation in production and slow demand.  We have seen a great deal of innovation take place, but yet to see much signs of slowing demand.  With so many shifts already having taken place, reliance upon the consumers ability to pay higher and higher prices appears as the factor of most importance.  

 

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Feeder Cattle:

Cattle feeders continue to fight for market share.  Backgrounders are benefiting greatly from the excess of unutilized cattle feeding production capacity. Futures traders are benefiting backgrounders by keeping basis even, if not negative in this years contract months. Barring the assumption of potential adverse price fluctuation on your own, the current environment appears exceptionally beneficial for backgrounders to manage price risk. 

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The current basis is believed susceptible to moving into a positive basis, in quick fashion, were something to begin to hamper cattle feeders agenda for market share.  Above, the cattle feeder has their hands full of juggling record profits on recent sales and projected losses on cattle recently placed.  As the bulk of October fats are on feed now, we can calculate all the variations that will need to take place to make a profit from lower cost of gain to a higher fat cattle price.  With today's higher trade in both the index and futures, we can begin to calculate what needs to be done to turn even more expensive cattle into a profit.  

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Corn:

A sooner than expected phone conversation between President Trump and Xi produced some support for all three today.  Beans got a good portion, with wheat maybe benefiting from dry areas in China's wheat belt. A trade of November beans above $10.40 will lead me to begin to expect a reversal.  ​

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Energy:

Energy was higher today, and made a new high from last Friday's sell off low.  A trade of August above $63.47, or a weekly continuation close this week of above $62.49 will lead me to believe a reversal in energy is taking place.  I anticipate energy to trade higher.  

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Bonds:

​Bonds and notes were lower.  While Friday's Unemployment report may be friendly towards a higher bond trade, higher commodity prices are expected to continue to hamper the consumers buying power.  As food and energy is excluded, due to volatility of commodity production, these factors can cause issues that are not picked up through economic data.  Retail beef is at historical highs with fats and feeders, along with coffee, cocoa, and gold not far from their respective inflated highs.  Were energy to move higher, I have to imagine the consumer will be shifting uncomfortably again.   ​

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 “This is intended to be or is in the nature of a solicitation.”  Futures trading is not for everyone. The risk of loss in trading futures can be substantial; therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not indicative of future results, and there is no assurance that your trading experience will be similar to the past performance.

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