“Shootin’ The Bull”

by Christopher B Swift

​10/3/2025

Live Cattle:

In my opinion, the bull market has ground to a halt.  Only cattle producers continue to operate at the elevated price levels. Retail grocers, restaurants and consumers are showing reserve in spending, reflected by the box beef price. The inability to push the higher price of cattle onto the consumer, in the form of beef, is believed to increase the risks cattle feeders are assuming, recognizable by the historic price being paid for feeder cattle.  With great expectation of government interference, it is difficult to foresee whether consumers are stimulated by a handout, what grain farmers are enticed to do if paid a subsidy, or if any export business can be revived.  As the number of cattle is limited, and a growing number unavailable to the open market, the next consideration has to be the underutilized feeding capacity that some are now experiencing.  The rationing of cattle is believed to have ended when a significant percentage through this year were contracted into a vertically integrated supply chain.  Leaving even fewer to the open market.  The rationing of feeding capacity is believed the next step.  More times than not, price tends to be a motivator of action.  In this case, it has done the opposite in cattle production.  Cow/calf operations have not been enticed to hold back cattle at the higher prices; they have been enticed to sell their heifers and hold back cows for the past couple of years.  While I won't argue this to the ground, but in the time frame where some analysts have listed drought as the reason for the lower cow herd, I disagree.  I believe it was the 6 trillion dollars thrown into the economy, and 20 plus million more mouths to feed, that caused the price rise and desire to make more money with the one in the hand, than attempt the two in the bush. The only information I have for disagreeing with the drought aspect is from listening to clients discuss what they did with the drought payments made over the years.  I did not hear one of them say they liquidated, or moved cattle, but simply bought more cattle.  It may not be that important as to why, but what it does suggest is that cow/calf operators are in no hurry to stop making money so the rest of the industry can operate with more volume. This makes the case stronger for some form of reduction in feeding capacity.  

I was not let down in my expectations of increased volatility and wide price expanse.  Futures traders have helped cattle feeders out more than you can imagine by holding up the price of December, February and April futures to produce a positive basis with this week's cash trade of $230.00.  Cattle feeders have been able to secure a minimum sale floor at just under $3.00 from this week's cash trade out to February with just an at the money put option.  Although this year has given producers a tutorial on hedging into a bull market, causing some to either forego risk management, or revert to just long put options, but the better business decision appears to still be the fence options spread that will help to moderate basis risk, or potentially capture a portion of, if becomes available. The risks and rewards of this hedge strategy need to be addressed before application, due to unlimited risk and margin requirements.  I can tell you with little reservation that regardless of what may take place between the time you apply the hedge to the time you take it off with the sale of the cattle, the end result will be exactly as you penciled out prior to placing the hedge.  If there were any discrepancies, it would be on the cash side in the form of basis.  The increased input costs to raise cattle, combined with the increased value of, leaves a great deal of room for loss, were prices to move lower and questionable returns if higher.  As the sideways pattern continues to evolve, we are witnessing whether or not the packer needs more cattle than they are currently leading you to believe, potentially leading to new contract highs of futures, or cash trade.  

In the feeder cattle market, we are witnessing whether or not cattle feeders will compete more fiercely to sustain a seat at the table, potentially leading to new contract highs of futures, or cash.  The current triangulation of the chart pattern of both fats and feeders, leaves a great deal of room for error.  New highs suggest the industry has not reached a level of vertical integration desired, while a lower trade would suggest, to a point, reduction in feeding capacity is taking place. Even with the Mexican border closed, and no way of knowing what the next step will be when the screw fly is here, it's like a black swan that everyone can see, but ignores for the moment.  I don't expect the border opening to be the event that turns the market.  I do believe that were forms of rationing to be taking place, leading to less pen space to fill, it could exaggerate a move lower that may have already be in play. Other than this, cattle feeders will be assuming more risks and in great need of more working capital than ever before.  Lenders have stretched lines of credit to widths never imagined by them or the producer. Some believe the vulnerability of a price decline is muted, due to the supply issue. I don't.  I know that demand, or lack of, can turn the best laid plans into a worst-case scenario within a short period of time. Not to say this will be the issue, but I have no reservations about the price of cattle's ability to move lower over higher in such a tight supply situation. A discussion this week led to a common thread of education.  Even with a plethora of derivatives to help manage the potential of adverse price risk, few are educated enough to use them, or use them effectively.  No doubt, I can hear the mumbling of those that did not make as much as what they could have, but most all will find they made what they had planned on when applying the hedge. The clarity of hindsight will always be 20/20.  

I had been bullish energy, because of the government reports reflecting a good economy and the strife taking place in Europe and the middle-east.  The erosion of price this week in energy though has been to an extent that signs of recession are believed more of a price impact than anything else.  I say that due to crude and gasoline having made new lows from the July high with diesel fuel not far behind. When coupled with the desire to lower interest rates, and push cash payments out to consumers, it looks as if the economy does need some stimulating.  Bonds continued to stagnate, and ended lower on the day Friday without the release of the monthly Unemployment report.  If any clues could be gleaned from this week's ADP report, it would lead one to anticipate another drop in employment.  I am no longer bullish energy, barring escalation in Europe or the middle-east, but I am not bearish either.  A trade back under $60.00 for crude would begin to strengthen a bearish outlook on energy.  I anticipate bonds to move higher as there is a great desire by this administration to do such, and now there appears signs and signals that the Biden era of money printing has run out and needs another shot of to keep from falling into a recession.  

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