“Shootin’ The Bull”

by Christopher B. Swift

​5/21/2025

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Live Cattle:

Since the April 25th close on the weekly continuation chart, representing the last of the April contract, it has not closed above $115.00.  June, now the leading month has traded above $115.00, but yet to close above.  I have little reservation that June can or will close above $115.00.  Until then, and with the June on the heels of, it will be interesting to see if traders will narrow basis further with futures.  So far, they have remained reluctant to push futures price to levels for which it would be anticipated the cattle feeder allows them to own everything in stock.  

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The significance of positive basis exposes producers to risk that can't be managed.  Therefore, cattle feeders are left to do the best they can with what they have.  Doing nothing exposes them to the world at historical highs.  Hedging with a short futures exposes them to the basis spread and loss of further upside potential.  A long put option appears as the only way to have some form of downside price protection while not exposing one to the wide basis spread.  Since there is nothing one can do about the spread, do the best you can.  That being, owning the at the money put option in the contract month you will be marketing inventory.  This is simple, manages risk of adverse price fluctuation, and exposes the producer to the premium paid for the option.  Were basis to converge with futures moving to cash, you lose the premium and gain the spread.  Were basis to converge with cash lower, you lose the cash premium and are short at the highest price available to you at the time you entered into the position.  As you can see, the cattle feeder is assuming significant risk.  

Feeder Cattle:

Backgrounders can clearly see the risks cattle feeders are assuming, and know, or should know, that feeder cattle prices are determined by what the cattle feeder will pay.  Outside the cost of feeder cattle, other inputs are on the rise.  Crude oil and gasoline made a new high from contract low today. Diesel was hot on their heels.  Although the large gains did not hold, it appears that north is still the path of least resistance. One bomb or rocket hitting the right or wrong target would be expected to send crude sharply higher.  Corn has perked up as well.  Now about $.20 off the low, I anticipate corn to firm going forward.  Probably the worse thing would be the higher interest rates.  With so much working capital borrowed and rates elevating, cattle feeders have that much more to be concerned with.  All in all, my analysis suggests a great need to reduce production and processing capacity, with few aspects of on the horizon. So, next most probable move is to push prices sharply higher or lower in an attempt to reduce the amount of production and processing capabilities. 

Unlike the fat cattle market, every derivative is available to you in the feeder market due to the near even basis. You can assume, or negate as much risk as you wish and do so at current cash prices.  For those marketing in the June and July video sales, for which basis cannot converge within the time frame, I recommend you buy the at the money August put option.  This is a sales solicitation.  The purchase of would be to reduce risk in the time frame until the gavel slams on your cattle.  Due to the even basis, price fluctuation within the premium paid for the put would be one hand washing the other.  Inside of the premium paid, producers may benefit slightly from either the put option or cash.  Outside of, and producers would benefit directly from either the rise in cash, more than the premium, or rise in put option value.  Until the CME can produce a July contract month, I don't see much else that can be done without great complexity.  With knowledge, I do believe the CME is working on the listing of a July contract.      

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Corn:

Corn is about $.20 off last weeks low.  Many appear content that corn prices won't rise.  They may or may not, but the only way to keep a higher price from impacting profit margins is to own them, or the right to own them.  In this case, I think the right, but not the obligation, to own them would be of benefit as the new administration continues to produce large swaths of volatility and price expanse in multiple markets. Beans were higher today.  I continue to recommend buying November beans with a sell stop to exit only at $10.10.  This is a sales solicitation.   ​

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Energy:

​Crude and gasoline made a new high from contract low today.  The session opened sharply higher on news of a potential preemptive strike on Iran's nuclear facilities from Israel. As the news faded, so to did prices.  However, the new highs suggests the path of least resistance with expectations of more saber rattling and volatility.   ​​

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Bonds:

​My thoughts on bonds finding a bottom was tossed to the wayside today as bonds made new contract lows.  The form of inflation impacting consumers is not expected to deflate.  If anything, stagnate would most likely be the best way to view the current environment. Bonds at new lows and short term notes appearing to resume their down trend suggests producers will see a higher rate for extended or renewed lines of credit.  

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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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