“Shootin’ The Bull”

by Christopher B Swift

​9/16/2025

Live Cattle:

There is market price action that suggests inflation is rising.  Gold, continues to set new historical highs, along with equities. Energy, although just last week I anticipated to start trending lower, has reversed with diesel fuel leading the way higher.  The US dollar is less than a half a point from contract low and bonds moving higher.  All of these market price factors are representative of an inflationary time frame.  As the US has been somewhat void of commodity price inflation, barring beef, any rise of would be anticipated to further strain the current discretionary spending habits of the consumer.  So in lies the question, will beef and cattle prices continue to keep up with the pace of inflation, or will the inflation itself redirect consumer spending to a point in which some are not as willing to pay the higher price, or consume more.  Recall that beef demand has been hinged on nearly 1 million less employed consumers than previously were led to believe.  Any further increase of inflation would be anticipated to negatively impact the consumers ability to spend. 

Cattle feeders continue to sit on, and place the most expensive inventory in history for which a portion of the reasoning for bidding so high was in expectation of a reduction in input costs.  So far, that has not materialized, leaving cattle feeders with historically priced inventory and not nearly low enough input costs to offset.  Throw in the positive basis of fat cattle futures, and it doesn't take much to see what has to go right and what could go wrong for cattle feeders to profit.  Although hedges are anticipated to be of great benefit, were an adverse price to materialize, but won't help to offset all of the other decisions made that has placed cattle feeders in the current situation of total reliance upon an ever increasing price to return input costs.        

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Feeder Cattle:

If the Trump administration is going to support row crop farmers this year, then there will be little reason for corn to move lower.  There is really no reason for a farmer to sell at this level if they know they will be given life support until the price moves higher.  So, I believe that this factor is some of the reason for corn moving higher.  Regardless, it's not moving lower and that is what cattle feeders were in anticipation of.  Were fuel prices to elevate as well, I think it will even more difficult to justify bidding inventory higher.  So far, there has been a mere pause taken in the bidding for inventory.  Basis has been distorted significantly, leaving a great deal of room for error.  With futures traders having done producers a solid favor on Monday, by returning what was lost on the previous Friday, basis spreads for this years remaining contracts are not too bad. ​

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It is the spring that has most of my attention now. The exceptionally wide positive basis leaves a lot of room for error, but there are ways to help mitigate some of those risks.  Decisions have to be made as to whether you are marketing inventory or speculating.  Speculating opens the door to potential improved gains, or increased losses.  Hedging will mitigate profits and losses in return for a set sale price, whether futures or options. I recommend you visit with your lender to see how much more working capital is going to be available to you, and whether or not they are willing to help you manage your price risk with futures and options.  Regardless of who funds the operation, input costs are rising and more working capital is expected to be needed to maintain everything, including potential margin requirements of option premiums.  

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Let's work backwards to see what can be done to reduce the impact of the basis spread and produce a minimum sale floor.  Producers will most likely gauge win or loss by how close they can market to the historical high of the index.  At present, using the March contract for example, the basis spread closed today at approximately $24.00 positive.  If using futures, you are assuming all $24.00 right off the bat, regardless of which way convergence takes place. If using options, mitigation is sought between the basis spread.  With $367.00 the current historical high of  the index, then consider creating a fence options spread with the short call as the starting point.  At the very least, you won't be in jeopardy of losing the basis were futures to rise to the levels of the index.  While unrealized losses may mount in the interim, realized losses don't materialize until the underlying futures is above the short call strike price. Once you have the premium of the call, then look at put strike premiums to see how close you can get to the money for the total amount of option premium you wish to spend.  In this example, buy the at the money March $336.00 put and sell the March $366.00 call for a premium of approximately $10.65.  This is believed a very good premium to work with at only 3.1% of the value of the contract considering the amount of time and value retained.  This is an example of a sales solicitation.  Other than this, you can assume the risk yourself, use futures and expose yourself to both basis and adverse price risk, or pay full value for the at the money put, currently at over 5.5%.  When coupled with rising input costs, consider just how much of the inherent risk associated with livestock production do you wish to assume having paid what you did the past couple of weeks and months.  Lenders are in a precarious situation at the moment.  I believe they can see, as well as I can, that input costs are not declining and the producer will need more working capital to manage potential adverse price fluctuation of an extremely valuable commodity, and one of only a few commodities at historical highs.  I willingly admit again that I have no idea to what extent someone will go to in order to remain in the cattle business.  At the moment, with a pause in the price rise of the index, we are most likely seeing some of the rationing having an impact.  Wednesday's rate cut is expected to spur more inflation. 

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​Corn:

Corn is higher on what may be the largest corn crop in US history.  Feed stuffs are abundant everywhere that I know of, but pasture conditions in the southeast are deteriorating at a very quick pace.  The industry seems to have everything it needs to produce more cattle and more beef, just at a more expensive price.  ​

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November of '26 beans are now in a bull market.  Having made a new high from contract low, and this years short acres, and maybe not as much yield as has been estimated, makes for a good start to a bull market.  I recommend buying November of '26 soybeans.  This is a sales solicitation.  For soybean farmers, own the $12.00 November '26 call options.  This is a sales solicitation.  When or if beans trade above $12.00, you can market freely your cash inventory or advance inventory and still remain long the market with your now at the money call option.  This is considered a courage call.  The ownership of the call gives you the courage to market inventory under conditions that may appear to be bullish without missing out on further upside potential price movement. If you have questions about this, call and we can help.  

Energy:​

​Diesel fuel broke out to the upside with a new high from the mid-August low.  The abrupt reversal leads me to go with it and not attempt to fade it.  I recommend topping off farm tanks and booking fall harvest and transportation needs today. This is a sales solicitation. In the past 12 months, October diesel fuel has been above $2.40 for about 12 trading days, with all of that in the June and July time frame for which the Iran issue was the hot topic. So, trading back above that level will be construed as a breakout to the upside and I recommend you do not fade this rally.   ​

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Bonds:

Bonds remain in an uptrend.  The quarter point rate cut is believed baked in, so a half point would most likely stir the hornets nest.  Regardless, lowering interest rates is intended to spur economic activity for which at the moment appears to be running at over 3% inflation rate.  I am unsure whether traders will take this as a que to run hot, or foretelling of a weaker economy and more cuts to come.  Regardless of which, everyone is experiencing inflation, but not everyone is in a higher spending bracket for which a great deal of the inflation is believed due to excessive government spending and those who have benefited greatly from 6 trillion dollars risking like cream to the top.  These comments lead me to believe even more the two tiered economy is developing.   ​​​​​​

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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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