Shootin' the Bull about increasing input costs

“Shootin’ The Bull”

by Christopher B Swift

7/08/2026

Live Cattle:​

So far this week, corn has rallied sharply, diesel fuel rallied to within $.16 of contract high, and interest rates rose sharply.  All the while, producers are buying cattle that would need a breakeven as fats at north of $270.00.  If this is not the top, when it comes, it should look an awful lot like it does today. 

Basis spreads were taught at this morning's low, leaving few to want to sell at the extensive width.  The lack of selling at the lows is believed to have allowed for a recovery before the close.  To the cattle feeder though, the starting spreads continue to work against producers.

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Boxes were down again today, with only a reduction in slaughter anticipated to cause a rally. At the moment, December and February fat cattle will have the highest priced inventory on feed until or if a new high of the index is made.  I recommend cattle feeders attempt to market additional inventory around the $238.00 area if achieved.   

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​​​​​Feeder Cattle: ​

Basis widened significantly at today's low, causing traders to close the tiger trap, at least a little.  A trade to between $358.00 and $362.00 will be viewed as areas of interest to market more inventory.  Today's index is expected to be around $370.75. 

Lenders are believed to have been astute in encouraging producers to hedge.  With some, LRP's have been the derivative of choice. As some of those were entered into earlier, there may have been considerable price advance that could be captured with a put option.  I recommend you take a look at where your clients are floored and see if there is an advantage to rolling up lower sale floors.  This may be of great advantage to you as well with the amount of working capital at stake. 

There is ample room for convergence of basis. Do not be surprised with high volatility, but I don't expect futures to converge the entire spread, even if the index climbs higher. 

If you are a cattle feeder, and think the price of feeder cattle are going to move higher, buy the call option at current contract high of the futures contract you are interested in.  The lesser premium paid for the out of the money is believed an advantage, were futures to not achieve a new contract high.  

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​​​​Corn:

Corn missed a 50% retracement by a quarter of a cent today in the December contract.  I do not know if corn will ever move higher, but I recommend buying call options in corn at strike prices you don't want to pay for corn and in time frames of needed delivery.  A 50% retracement of the rally from contract low is at $4.45&3/4.  If you think corn is going to go higher, I recommend buying December corn at $4.46 with a sell stop to exit only at $4.36.  Soybean meal continues to be recommended to own call options in for pork and poultry producers.  Today's prices are not expected to be next year's prices, whether higher or lower.  Consider where the lows have been and highs and make some difficult decisions that will help to manage price risk.  

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Energy:​

All were sharply higher as the military actions are believed resuming.  Market price action has been so volatile and so price expansive, most anything commented on has been dismissed from one day to the next.  With recommendations last week and early this, to top off farm tanks and book some fall harvest fuel, producers should have a little head start on this rally.  August diesel came to within $.16 of contract high.  This is still over a dollar under the March high of $4.83, so you may not have seen anything yet.  With the President resuming military actions, and multiple unknown consequences of, I recommend you be more prepared for unexpected price action, and be really glad if it doesn't transpire. 

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Bonds:

​Bonds are lower as inflation continues to move higher.  Stated another way, consumer spending power is expected to be reduced further with the ongoing printing of money and now a potential 1.5 Trillion dollar increase for military spending.  The yield curve continues to steepen with interest rates moving higher in the back end than front end. 

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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.