“Shootin’ The Bull”

by Christopher B. Swift

​5/13/2025

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Live Cattle:

You have heard it before that a bull market has to be fed every day.  Looking at the chart, it appears that this bull market is glutenous with the past 6 weeks, simply packing on fat.  With the re-shutting down of the Southern border, it leads me to think, "what is there left"?  It is unlikely that the Canadian border would be shut down, due to the leverage Trump has over, but not necessarily in Mexico.  So, the event of shutting the southern border again leads me to think that it is possible this could have been the dessert for this bull market.  Traders left the fat cattle market on Monday, as open interest fell about 1,700 contracts.  Today, it was noted that option premiums were exceptionally swollen.  These factors lead me to believe fewer are willing to accept your risk, and when they do, they want more money.  We already know that none are willing to assume your risk at current levels of cash.  The futures traders has a wide jump on cash traders were prices to turn south.  The growth of the farmer/feeder is believed a significant pull on feeder cattle inventory as some have a lower cost of gain than some of the corporate feedyards.  I think this is why we hear that some of the majors are not full, but yet we continue to keep well over 11 million head on feed.  With next weekend being the Memorial Day holiday, how beef moves will be of great importance in gauging consumer demand.  Packers are over a barrel, cattle feeders are fat on the front end and lean on the back when viewing profit margins, and the industry as a whole manipulating production and processing to keep or find margin.  Again, what is there left?

Feeder Cattle:

​Feeder cattle option premiums were swollen even more than fat cattle.  This leads me to believe those who are willing to assume your risk for a limited amount of money are wanting more money to assume your risk.  Why?  Most likely they see a 5 year long bull market with exceptional inflationary pressures on consumers for which may or may not be able to maintain current consumption rates, or price.  It appears this is a squeeze. As troublesome as this is to comment on, I have a difficult time finding answers outside of what I already know. That being, there is only so much inventory to go around and some are aggressively obtaining ownership to maintain current production levels.  With fewer bidders, the ones remaining won't have to bid against someone, and therefore prices have great potential to subside.  As it all hinges on the cattle feeder, simply due to the excessive risks they are assuming, we can only wait to see if they are able to sustain their current appetite.  Recall that Sunday's closing of the border could have well been the dessert of this bull market.  Although I do not foresee any contraction in cow/calf production capabilities, I would expect some lateral movement from older producers to younger ones.  It is backgrounders and cattle feeders for which there appears too much production capacity.  Backgrounders may be able to shift more easily in changing conditions, as well as the farmer/feeder, but the corporate yards don't have a lot of wiggle room and can't aggressively shift as some can.  Not only that, the horrible positive basis of fats, and continual gains in feeder prices over fats, puts the cattle feeder in one whale of a predicament.  

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Corn:

Beans are expected to be the benefactor of any Chinese agreements.  Corn is believed soft due to planting gains and wheat just simply bounced off a new contract low this morning.  There is very little taking place in grains, suggesting that option volatility premiums are not swelled, providing the opportunity to fix your needs at the strike price for which you no longer want to assume risk of higher corn prices.  

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Energy:

​Energy was sharply higher again today.  I expect energy to have reversed higher. Diesel fuel is the big gainer today.  Due to anticipation of higher energy costs, I recommend buying crude oil call options in the October and December contract months.  This is a sales solicitation.  Strike prices and premiums paid will be determined upon how much risk you wish to assume versus how much risk you wish someone else to assume. 

Bonds:

​Bonds have been lower all day.  Inflation continues to rise.  I see very little that will change the goods and services inflation with a belief that commodity inflation has yet to come into play.  Therefore, I don't expect interest rates to decline.  ​​

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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.