In my opinion, we are in the midst of discovering to what extent some will go in the attempt to maintain, or gain in market share. Cattle feeders are believed the spearhead of the move higher in feeder cattle. As there has been no contraction of production capacity, cattle feeders are having to buy feeder cattle, at extreme spreads between start and finish, in order to meet contractual agreements. Regardless of price direction, the spreads alone are creating risks that may or may not be able to be managed with any derivative. Grocers and restaurants turned a blind eye to the rally in cattle and were able to buy beef cheaper this week. Their aspects appear to differ on the ability of the consumer to pay any price than cattle feeders do. Lenders are loaning out money left and right to nearly all farming and ranching operations. Whether helping to offset the low price of grains, or help finance cattle or margin calls, the lender is believed having reached a new level of capital requirements for Ag lending.
Protectionism versus free trade is front and center in the cattle industry. This week, some associations applauded the USDA for opening the border with Mexico as it appeared that southern cattle feeders are in great need of this inventory. Others applauded the reclosure stating there is no need for any beef or cattle to be inside the US, but US cattle. While this battle has been ongoing for years, it is on the forefront today due to the importance of supplies. If one were to dig a little under the surface, protectionism is playing a vital role in the supplies that could be made available to the US. Hence, some producers, not impacted by the loss of inventory from south of the border, are holding on to what is believed as a very profitable production scheme that may or may not be dramatically upended were more supplies to be made available. Throw on top the newly applied tariffs on to imports from Brazil, and it only goes to further strengthen a few producers, especially commercial's, position in the market.
Current basis relationship of fed cattle, spread between starting feeder and finished fat, and questionable further resilience of consumer demand, all produce risk that may or may not all be able to be managed. As well, the increase of capital requirements, and risk of potential adverse price fluctuation, is believed rationing the number of participants. Futures and options, and LRP policies, offer a plethora of means for which to manage risk that can be. Hindsight will play a critical role going forward as those who have used such in the first half of the year may question its need for the second half. With great knowledge of this being a commodity market, and having seen several this year revert from historical high to 14% to 50% lower, you have to know that cattle and feeder cattle are subject to the same fundamentals as these other commodities. Supplies were short and ways were found to increase, or the price curbed the demand for. In this year, Orange Juice has declined the most at 59% in 4 months, Coffee 31% in 3 months, Crude oil 18% in 2 days, with Corn & Soymeal down 14% since February. Were feeder cattle to decline from today's high by the minimal of what corn and meal did, it would be an approximate $45.00 decline. If the New World Screw Worm can halt interstate transportation between countries, if found in the US, would it halt interstate transportation between states? If so, what are the consequences of inability to ship cattle from a feed yard in one state to a packer in another? Or, backgrounded cattle, ready to go on feed, but can't transport to a yard? I think you should pay close attention to this issue as it has been main stream this week, is the most relevant aspect of increasing supplies to US cattle feeders, and the current administration seemingly causing great disruptions of commerce in the cattle industry through believed influence from multiple associations attempting to break or solidify the current border closing.
Energy closed the week higher and remains much closer to $70.00 than $60.00. Diesel fuel continues to lead the way higher, leading me to continue to recommend topping off farm tanks or booking some harvest fuel needs. Bonds were lower at weeks end with gold breaking out of a significant triangle to the upside. Both of these movements, when combined with the weak US dollar, reflect an environment of more inflation than deflation. As the Trump administration continues to be exceptionally volatile in actions on tariffs and unknown aspects of whether or not the next administration can maintain, or will destroy current work being done, these actions are creating exceptional volatility in price of commodities. Corn is lower and believed going to move some lower. I continue to believe November of '26 soybeans to be a market with great potential to move higher.
Christopher B. Swift is 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.shootinthebull.com.
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 their 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.
