“Shootin’ The Bull”

by Christopher B. Swift

​5/19/2025

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Live Cattle:

A great deal of contemplation is taking place.  Cattle feeders have not pushed as hard for incoming inventory with the index reflecting this in a softer trade. With boxes above $350.00, and this one of the largest beef eating holiday weekends, everyone will be watching to see how movement progresses.  Cattle feeders are believed to have benefited from one of the highest profit margins ever seen on a per head basis last week.  The combination of having paid $25.00 to $30.00 less for feeders than at present, and the $30.00 to $40.00 rise in fat cattle prices in the same time frame, has produced a profit margin that will be difficult to sustain, and more so to improve on.  These enormous price ranges being traversed are not for the faint of heart and while benefiting some, will be the detriment to others.  At this point in time of the bull market, it appears that rationing has moved fully to the aspects of reducing the number of producers or production and processing capabilities.  Other than this, it appears as if price is finally having an impact on all sectors of the industry.   

Feeder Cattle:

The basis in feeder cattle is significantly narrower than in the fats.  At just slightly positive across this years contract months, futures and options offer producers a way to capture basis for which is found nowhere in the fat market.  Wednesday and Thursday of last week saw a great deal of premium erode to push the basis from negative to positive. 

Nearly half of all inventory marketed for the year will be between late June and end of August.  Backgrounders escaped what was to be a Moore Research seasonal tendency lower into the end of May.  Instead, prices have risen counter seasonally, and by a great deal.  Since I have no idea to what extent cattle feeders will go to obtain inventory, and the summer video sales your one or two marketing's for the year, I recommend you own the at the money August put option for inventory to be marketed on video sales.  This is a sales solicitation.  You will not have time to converge basis if marketing prior to the expiration of the August contract.  The objective is to avoid any further downside price movement prior to your sale while basis is even or barely positive.  I recommend you view this as position you hope to salvage.  That being, how much of the $8.00 to $10.00 put option premium will decay before the sale date on your cattle.  The day the gavel slams on your cattle, you instantly exit the put option.  This recommendation is made due to the extent of price recently gained, the importance of the volume of sales on the horizon, and current state of the cattle feeder reaping historical profits today, based upon events that may be difficult to duplicate in the future.  Think this over and put pencil to paper to see how this may impact your marketing plans for the video sales. This recommendation is an $8.00 to $10.00 range you will need to see prices trade out of to benefit in either price direction.  The best laid outcome would be that cash remains stout and futures trade deeper into a positive basis.  The worst outcome would be for basis to go negative again, eroding put option premium and not benefiting from the rise in cash.  This is a sales solicitation. ​

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Corn:

​Corn was higher.  Corn is cheap and may get cheaper.  If it does, cattle feeders will benefit. If it goes up, cattle feeders will be detriment from.  I continue to recommend owning call options at strike levels for which you no longer wish to assume risk.  ​

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Energy:

​Energy was merely soft today after having traded a narrow range and both sides of unchanged.  I anticipate energy to continue higher.  Input costs are believed cheap in comparison to historical levels. The cattle you are feeding are the most expensive ever and your operation will have to have certain commodities to operate.  While prices are low, I continue to recommend owning call options in the October and December time frames at strike prices you no longer wish to assume the risk of potential price advancement.  A trade of August crude above $63.40 will help to confirm a reversal in price is taking place. ​​

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Bonds:

​Bonds traded sharply lower on Moody's downgrade of US debt.  By days end, bond buyers could have cared less about Moody's rating. Traders made a double bottom in the September contract.  I think it possible bonds have bottomed for a while, but with so much inflation that can't be reduced for the moment, stagflation could rear its ugly head 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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