“Shootin’ The Bull”

by Christopher B. Swift

​5/28/2025

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Live Cattle:

Boxes were sharply higher at mid day. Now trading in the 360's, consumers are facing a similar rationing as are producers.  The higher beef prices move, fewer consumers will be able to afford.  I don't expect a halting of eating beef, but a continual change in where we eat and what cut or grind is prepared. Nothing has been more definitive than the consumers switch to hamburger, reflecting the demand for a lower cost product.  Where we eat is now in question as menu prices have elevated further, causing what is now a noticeable shift in how and what restaurants are advertising.  Dr. Peel showed an interesting chart of placements and cattle on feed.  The spread between the two is phenomenal at the moment, showing number of cattle on feed stable or growing, all the while, placements lower.  This is simply keeping more cattle on feed for longer.  His idea is that if expansion were to begin, it would pull a percentage of the placements lower, leading to my idea of creating more glut of production capacity than is needed.  Since the start to expansion is painfully slow, and ideas that an increase in cow slaughter would help to offset beef production as heifers are held back, expansion could be even slower in producing results. Therefore, again, production capacity is woefully too great for the amount of inventory to be produced.  Does this make the price go down?  Yes, as production capacity is reduced, so to is the bid for those animals that no longer have a space.  Now, here is the trick to all of this.  At the moment, there is no sign or signal that any cattle feeding facility, whether commercial or farmer/feeder, is in the process of contracting.  There are one of two ways this can be accomplished.  In the attempt to force closure, the price will continue higher, with fewer cattle, until some can no longer produce under these fundamentals, or the price of fat cattle decline, for any reason, producing growing negative margins to cattle feeders having placed the most expensive inventory in history on feed at present. 

At the money put option premiums in live cattle are between 3 to 4 percent of the value of your marketing inventory, depending upon time.  This knowledge should help in making a more informed decision as the current value of the contract makes price moves large, but percentage moves, not so much.   

Feeder Cattle:

Futures traders didn't seem as gamey to want to assume producers risk at a premium, or even mild discount.  Today's early price action gave producers an opportunity to act with prices slightly higher on the day.  After such, producers were having to raise bids on puts and lower offers on short calls.  Again, I think there is equal importance of attempting to hedge in a friendly environment, as there is at a price level desired.  Note the spreads between starting feeder and finished fat are reversing.  I think this could be a clue as to a slowing of the aggressive bidding cattle feeders have put themselves through. 

If you decide you want to trade the spread, you will need to trade an equal contract size.  This suggests having to trade a spread of 4 contracts of feeder cattle to 5 contracts of fats.  This gives you an equal 200,000lb contract size.  It is very possible, due to the variance in contract size, that you can be correct on direction and spread movement and still lose money. 

I think Tuesday's volatile move caught the attention of many.  This is not an isolated ordeal as issues such as this have taken place in other markets.  I think this issue will agitate some to become even more aggressive, wanting to get back at the market, as well as dissuade some from participating, as speed and profit/loss of movement is too great.  I think the market has topped and while may be slow to start lower, some agendas are being completed with others being abandoned.  ​

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Corn:

Corn and beans were dinged today with planting wrapping up and early growing conditions favorable.  Today's lower trade in beans prompted another recommendation to own November beans with a sell stop to exit only at $10.10.  This is a sales solicitation.  Wheat was a little higher. 

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Energy:

Energy was higher today.  Still in a sideways pattern, crude needs to begin trading above $63.00 to breakout of the stagnation.  I expect energy to continue to trade higher.  

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Bonds:

​Bonds were lower today.  I don't think inflation is going to subside and today's FOMC minutes suggested the same thing. 

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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.