Shootin' the Bull about negative margins increasing

“Shootin’ The Bull”

by Christopher B Swift

​12/03/2025

Live Cattle:

Cattle feeders are finding themselves battling increasing negative margins again.  I am unsure what to think about this, but it seems to be in the cash markets, where cattle feeders make the decisions that impacts futures.  Feeder cattle futures are believed doing little more than responding to the willingness of cattle feeders to bid higher for incoming inventory.  Cattle slaughtered in December were primarily placed in July.  The index in July averaged $323.80.  Cattle sold last week lost approximately $38.00 per head, and the index is $10.00 higher than that this week.  Projected losses continue at over $500.00 per head, so I don't expect the feeder cattle market to last long at these levels without a significant jump in fat cattle prices.  

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Feeder Cattle:

Backgrounders are urged to consider the position the cattle feeder is entering into and use this rally in both the cash and futures market to let someone else assume portions of the risks you are assuming.  I have little reservations on any increase of supplies, but do have great concern over consumer demand for beef.  I think it possible that the higher price of beef remains well into next year, potentially further curbing some consumer's appetite, or reducing profit margins of beef sellers, loosening the death grip of demand for cattle seen over the summer of '25.  Especially with the efficiency and grading of cattle, producing more and higher quality beef.  I highly recommend you forego price predictions, simply due to the excessive price expanse of over $40.00 lower to $35.00 higher in a 4 week time frame.  This leaves a world of room for error.  So, don't do it.  Pick a marketing price you can live with and lay off the risk with an at the money put, or any form of options strategy you prefer to help mitigate potential negative price movement, due to the significance of projected losses. 

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Producers are anticipated to have started procuring inventory to market in the summer video sales of '26. Assuming the risk of knowing basis won't converge, if I market in June or July and have put options on the August contract, won't make this the ideal hedge, but it is what is available until there is a July contract or you can market closer to the May or August.  Knowing this, I am going to recommend to use this $35.50 rally in just 5 days of the August contract to lay off risk.  I recommend buying the August at the money put. This is a sales solicitation.  I want to sell the call against it as well, but may attempt to lay them off at a higher level if achieved.  Not selling the call option at the same time may or may not produce a higher premium or strike price of the call.  If the price does not move higher, then you already own the at the money put and may or may not make further decisions on the short call option. If prices do move higher, then the sale of the call at a higher strike price or greater premium may or may not be of benefit towards the purchase of the put option.   

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​Corn:

I have not a clue as to why corn sold off more than it rallied on Tuesday.  It doesn't matter.  I think that the nail has been driven in the coffin for corn and beans with the announcement of a bridge payment to farmers. If a trade deal were going to go through, there would be no need for this payment.  I believe that it was pure expectations that drove beans up a dollar and corn thirty cents.  With those expectations now fading, and little change anticipated in next weeks crop reports, corn and beans are believed going to trade lower. Even if you do not sell beans, I highly recommend you do not buy them on the futures market, or pay an option premium as that would put you even further from the cash market.  If cash does not move higher, futures will move to cash, and if neither one move higher or lower, the option premium will decay to zero.  The only chance of making money being long beans is a short covering rally from futures traders, or some significant increase in demand for cash beans.  As the diesel fuel continues to fade in price, it is anticipated to take bean oil with it.  

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Energy:​

Energy was mixed with crude a tad higher and the products soft.  I continue to anticipate a decline in energy prices.  The stagnation of crude oil has become long winded and is expected to break out sooner than later.  For the moment, I anticipate energy to move lower.  

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Bonds:

Bonds were firmer on the day.  The issue with Japan is more than interesting, with unknown circumstances to the US, simply due to their ownership of so much US debt.  So, think about this, when a market does not react bullishly, to bullish news, there maybe unknown factors that are more bearish forthcoming than bullish at the moment.  If rates are lowered, and no stimulation takes place, it may be that the economy needs to slow further, than speed up.  In my opinion alone, this economy is running very fast and not everyone can keep up.  If pushed harder, I believe fewer will be able to keep up. 

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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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