Shootin' The Bull about Heavy Livestock Markets and Higher Energy

In my opinion, what has been expected is believed to have begun.  That is, the realization of poor feeding margins, and now, seemingly a softening of the beef market, causing cattle prices to decline. Boxes around $366.00 ending this week suggest another $41.00 lower to reach the $325.00 support level.  From mid '23 to early '25, the $325.00 area was resistance until broken through in mid '25.  If resistance becomes support, we'll see how strong of support.  Basis and premiums eroded by weeks' end. The friendship of futures traders with producers appears strained.  Cattle backed up from the week prior, and larger percent long fed, was more than enough to break the cash price.  Attention paid to comments by restaurant giants, suggesting beef prices were inhibiting profit margins, is paying dividends. Beef prices are starting to fade. Traders pushed fat cattle prices below the 9/15 high, suggesting the up move from the August low a 3-wave move of a major B wave.   This leads me to anticipate the next most probable move to be a C wave decline.  The C wave will be anticipated to unfold into 5 subwaves. From Monday's gap opening high, to Friday's close, may be the wave 1.  If lower on Monday, it will still be the wave 1.  This suggests a wave 2 could be an opportunity to fix anything you didn't, when basis and premiums were incredibly favorable over the past two weeks. Due to the lower cash trade this week, and most likely a higher price of the feeder when placed, closeouts this week are expected to be north of $500.00 per head loss and projected over $300.00. 

October was a robust month for rotating cattle.  Sellers did great, and buyers may have a long winter to go through. Feeder cattle prices rose more than $20.00 over their fat cattle counterpart from the low of August. This kept projected margins from improving. Maybe the big break in corn helped to spur some of the bullishness, but from what I can glean from cattle feeders, they weren't the one's bidding inventory higher.   This suggests a lot of backgrounders bought undesirable weighted inventory for just something to have. Like the fats, basis eroded quickly and premiums to some of the more front months, no more. Spring feeder cattle have the potential to see more inventory available with the Mexican border crossing's improving each week.  Of interest to this is the feeder cattle index level when the border was closed.  The first time it closed was in November '24.  The index in November of '24 was between $249.37 and $255.94.   The second time it closed was in May of '25.  The May '25 range of the index is from $293.71 to $299.30. The index on Friday was $351.26. One has to consider that when the Mexican cattle were being allowed, the price of feeders were significantly lower than today.  If those cattle start coming back in, won't that begin to put dents in the "no more cattle" theory? When coupling a few more head from imports, and potentially some slack of Canadian buying, the US may find it has a lot more cattle to work with in the first and second quarter of next year than thought.  A close of the index under $342.50 will suggest to anticipate a sharp decline of the index to approximately between $299.72, 100% of wave A, or $267.76, 1.618% of wave A. 

Outside markets continued to hamper cattle feeders best laid plans.  The benefit of lower corn was shot in the foot with the higher feeder cattle, and outside of input costs.  Although an 18% decline from top to bottom in corn,($5,100.00) the feeder cattle rose 7% of the index,($11,580.00) 13% October futures and 17% January futures. Diesel fuel remained elevated and gained 13% in the same time frame and interest rates have risen a percent. Via the military actions around the world, seemingly no end to, and no increase of refining capacity, energy is anticipated to continue higher.  There is significant influence being attempted with the President discussing a quick end to the Iran issue.  Coupled with the mid-term elections and not much the US can do about other countries fighting wars, there is no telling what intended or unintended consequences will arise from attempts to influence. Nonetheless, that is what we are left to deal with and some producers have reloaded with exceptionally wide projected negative margins this month. Interest rates improved some this week with further government manipulation and exceptional government borrowing.  Earnings for some of the high-flying companies sent many in a tail spin Friday.  This caused the S&P to break sharply lower and believed to have suggested a top has been made.  If the rich no longer "feel" rich, there is not another class to take up their slack in spending. 

Christopher B. Swift is a commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "Mid-Day Cattle Comment" and "Shootin' the Bull" commentary found on his website @ www.swifttradingco.com 

 

This is intended to be or is in the nature of a solicitation. An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of the margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.