“Shootin’ The Bull”

by Christopher B. Swift

​6/26/2025

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Live Cattle:

The division between cattle producers and futures traders continues.  My opinion alone is that cattlemen are having to continue to bid higher for incoming inventory due to either being part of a vertically integrated supply chain, or simply believe there is no risk of downside price movement.  Futures traders have walked in lock step with cash, and at times led the way.  After a significant move higher in the fat cattle and beef markets, futures traders are believed viewing the odds of further advancement, versus potential decline.  Therefore, they are reluctant, even with merely two days left on the June contract to converge basis.  I believe that futures traders no longer hold the same opinion of cattlemen, with the wide positive basis as proof of.  Fundamentally, the current spread between starting feeder, via the CME index, and December live cattle requires the cattle feeder to assume more of the risks associated by paying premiums for incoming inventory and projected discounts of the finished product.  Currently, the spread is trading over $100.00 with expectations of even wider.  The more this spread widens, the greater the risk of returning input costs. 

Of great significance will be the month of July.  One function will be the increased inventory made available to cattle feeders through the upcoming video sales.  Another is that there will not be an expiring contract of fats or feeders until August.  The basis can run wild for however wide it wants to with little issue of convergence.  If found to be too wide by August 1, traders will go to work on convergence. So, while a literal death trap of positive basis to the cattle feeder, it is possible that in the next 30 days, the cash market drops to the levels of futures, if not lower.  If flipped, and cash remains higher, then futures will soar higher, converging basis. Hedged cattle feeders will be at risk the basis spread and be a great deal of the buying of futures to cover shorts.  So, again, just take a gander at the risks being assumed by the cattle feeder.  While observation of a situation does not move price higher or lower, it does reflect the situation a cattle feeder is in, and what may have to be done to resolve this current issue of historical profits on hand and significant losses projected.  

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Feeder Cattle:

The first, and foremost way a cattle feeder can control costs would be to not bid higher for incoming inventory.  As futures traders have already swapped basis from negative to positive, it still remains tight in comparison to the fat market.  Another way would be for cattle feeders to consolidate.  If conglomerates were running multiple yards at a reduced capacity, cutting out one and running the others at 100% may well be a way to combat the shrinking supply of cattle.  The granddaddy of them all will be when the USDA says enough of the protocols for the screwworm have been met to allow for the border to be opened.  It appears that cattle feeders in Texas, New Mexico, and Arizona are impacted greatly by the loss of this inventory.  On the flip side, the loss of the Mexican volume is a windfall to those not dependent on.  It is pretty clear to see the gains of some are the detriment of others in the same sector of the industry.  As only a few in the cattle industry have the ear of the USDA, I assume that association's are the ones spearheading the desire to reopen the border, or trying their best to keep it closed. Either way, the US consumer loses and cattlemen assume greater risks.  Keep it closed and you keep beef prices rationing consumer demand.  Open it, and many will cry food safety.  I know this is a testy and difficult subject to discuss.  I can't help but recall the governments actions to close commerce of the United States and directed its citizens to shelter at home to stop the spread of Covid.  The results of which will continue for several more years to come. In my opinion, all that it did was further divide the nation and cause significant financial gains and stress for many.  Long way around the barn, but my belief is that the southern border will open sooner, than later, and cause an instantaneous increase in available inventory to be placed into US beef production.  As I have no proof of this, or any inkling's about that I have heard, and stating all in my opinion, but the track record of President Trump appears to be as a problem solver, this is a problem, and is being addressed.  Hence, leading me to anticipate action sooner than later. 

I recommend you have all of your newly acquired cattle for fall marketing's to be hedged 100%.  This is a sales solicitation.   

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​Corn:

Still lower.  Due to the abrupt change in narrative in the weather and energy markets, it appears the overwhelming size of the corn crop, combined with the SA crop is going to make it more difficult for prices to rise than fall.  Farmers are believed having to make old and new crop sales with elevators and ethanol plants offsetting purchases with futures. I continue to be friendly towards beans but the drag from corn may be greater than the strength of beans.   ​

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Energy:

Energy is expected to be volatile and traverse the recent price range for weeks to come.  I anticipate energy to have a firm tone, even if not rallying.  Although a lax time for farmer fuel usage, preparing for harvest will be crucial.  Diesel prices rose more than crude and gasoline when higher and fell less when lower.  Get with your fuel provider to see what is available to you and potentially any fees tacked on to help mitigate risks.   Barring going into a recession, I expect energy prices to remain firm. 

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Bonds:

​Bonds were a little higher.  The volatility has been immense in bonds with very low price expanse. Stagflation continues and with today's first quarter GDP lower, the stagflation is believed impacting the economy and consumer spending. 

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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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