“Shootin’ The Bull”

by Christopher B. Swift

​6/04/2025

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Live Cattle:

Traders seemed to have little trouble pushing futures back to Tuesday's high.  For most contract months, this will be a new contract high close.  It is not difficult to see why.  The positive basis only increases the risk of production by forcing cattle feeders to assume the lions share of.  Hedge with futures and your risk is the basis spread.  If market moves lower, cash could move as much as 10% lower and still not quite reach the levels of the October and December contracts at today's price.  Put options do lower the minimum sale floor, but offers the ability to participate in higher cash trades if takes place.   

On the mid day cattle comment, I recommend a manner for which to address the horrible basis and belief that feeder cattle purchases today are based upon today's fat cattle price.  That being, I recommended buying 2 at the money put options for every contract needed.  If market continues higher, and you are going to be hedged, the two premiums are just about what the basis spread is.  Therefore, on a higher trade, you will still lose 100% of the premium on all put purchases, but you do have the potential to benefit from a higher cash trade, were it to materialize.  The flip side is that were prices to decline, the increased leverage produces opportunities to make adjustments, or simply help to make up the difference of basis that cannot be managed. I am having a difficult time foreseeing how to manage risk without having to increase working capital.  Not paying for put options, or not paying margin calls, is the only way I can think of to not have to increase capital expenditures for managing risk. 

Long way around the barn, but it appears the cattle industry needs more money to operate, based upon the extensive risk of basis and fundamentals of too much production and processing capacity for the amount of inventory available.     ​

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Feeder Cattle:

Backgrounders remain in a very unique position of holding high cards in the ability to lock in production at today's price, well into the future.  ​With the known position of the cattle feeder, I recommend you use this current basis spread to your advantage. 

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The arrest of two Chinese citizens, found with fungus toxic to cereal grains, with seeming intent to grow and distribute, seems a lot more significant than the press it received.  When combined with new found war technology from drones, I have to believe that some of these factors are being dismissed.  

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Corn:

All three were able to hold a portion of their gains for the day.  Beans continue to be viewed as friendly.  Corn has a couple of stumbling blocks of 4.5 million more acres, a 1 billion bushel carryout increase, and what appears as a large SA Safrina corn crop.  With drought in limited areas, corn is going to have a tough row to hoe without some form of damage or significant demand.  ​

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Energy:

Energy was lower today, but made gains higher early in the morning that brought it very close to a reversal.  I anticipate energy to continue higher.  

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Bonds:

​Bonds were higher as ADP and ISM data today showed signs of a weakening job market and economy.  Although Thursday's jobless claims will be important, Friday's Unemployment report will be expected to be a mover of bonds.  The next several months will be difficult for consumers dealing with stagflation and the Fed not wanting to cater to Trumps desires. ​

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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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