Grain Spreads: Cattle vs Grain 1st Quarter 2026

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2026 1^st quarter Livestock vs Grain Gameplan

The multiple reasons for the high-priced beef prices that enables in our view a continuous bull market since the Fall of 2024 include the following for the first half of 2026 remain the same in our opinion.

1. In our opinion the lowest cow slaughter in history in 2025.
2. the loss of access to Mexican feeder cattle as the Southern border remains closed.
3. Some heifer retention to rebuild the beef cowherd (the degree unknown) along with the historically low beef cow herd.
4. changes in cattle feeding practices the past year or more to include a sharp increase in days on feed (boosted by cheap cost of gain) along with the change in feeding practices has delayed cattle availability.
5. Lastly, an insatiable demand for protein by consumers, especially for beef.

Will Beef imports from South America have an effect?

The recent signing of an agreement to allow more imported grinds into the US with Argentina underscores the lack of supply in the US to meet consumer demand. With select becoming a niche market and continued limited cow slaughter the President recognizes the needs of the consumer. Ground beef is the jack of all trades for the beef industry, used in a variety of dishes that the consumer enjoys from hamburgers to meatballs and other ground beef delicacies. This epitomizes the lack of numbers we have in the US cattle supply. 

The rise of imported beef in the US to over 5 billion pounds shows the demand and lack of supply in the country that has led to record cattle prices in both the feeder and fat markets. With the limits on the select product produced, we have seen the select price catch-up to the choice and the packer now has a lot more prime beef to sell at higher prices. It is unfortunate that the packing industry is still unable to get cutout values in a position for them to make money. The packer has cut back on slaughter numbers to drive cutout values higher, but so far into the new year they have been unable to move the needle. If they were in a position for cutouts to move towards its all-time highs, I believe cattle prices would be a lot higher. With that said, the packer is likely making enough money in its other businesses to compensate for it lacks of profitability in this area. I feel they also put themselves in that position to fail when they took advantage of the retail industry and the producer during the pandemic that likely forced producers to forgo keeping their herds intact as the packer crushed them in taking cash prices to extremely low levels that forced some producers to get rid of their cattle and get out of the business. 

With cattle prices making new record highs, highlighted in our view led by the South taking the lead at such an early juncture in the year when we have the seasonally low cutout prices and the north near its all-time highs, what will happen when the retail industry prepares for grilling season? 

Bullish Live Cattle Position

Buy the June Live Cattle 240 call. Sell the June Live Cattle 250/240 put spread for a collection of 50 points or $200 minus all commission and fees. The maximum risk is 950 points or $3800 plus trade costs and fees. 

Margin $2770.

One is long June fats at 240. We are selling a $10 put spread to finance the cost of the call and collect a couple hundred dollars upon entry. The gameplan is to collect $ upon entry and at exit while being long June fats at $240.

Feeder Cattle

For even money, buy the May Feeder cattle 370 calls and sell the May 380/370 put spread. The maximum risk is 5K per spread plus commissions and fees. We see the feeder index continuing to work higher towards late Spring. We are not ruling out the 390’s that the index could reach. Therefore, May feeders too cheap here in our opinion if cash verifies. 

Margin $3900

One is long May Feeders at 370 for even money as we are a short a $10.00 put spread (380-370 May put spread to finance. 

Late 3^rd/4^th quarter 2026 cattle vs grain hedges

Here are a few of my trade ideas for those who need protection or want exposure to the downside in livestock. I’m not married to these option strikes or months here specifically but I think a further out strategy should be considered. They are a starting point or ice breaker for a discussion. Cattle prices could remain elevated throughout 2026, but I am combining them with long grain positions to offset costs to entry, where one collects upon entry. Nothing Goes UP or Down forever! I see a flip at some point where input costs go higher while the cattle futures board eventually moves lower. Timing? I want to go as far out on the calendar as possible, deep into 2026.  High prices take care of high prices in most cases and like 2025, we think something will enter into the market as it’s an election year with ramifications on trade one of the biggest concerns as it relates to affordability. Should those uncertainties emerge, we could see a pullback late 3^rd quarter. Those issues may just present a bump in the road regarding scarcity in the cattle herd. 

October 2026 Live Cattle

Buy the October Live Cattle 230/190 put spread, for 600 points or $ 2400 per spread. 

At the same time buy the January 2027 soymeal 4.00/3.50 put spread for a $4500 collection. 

Collection upon entry is $2100 for 1 spread package less trade costs and fees.

Maximum risk is $2900 plus all commissions and fees.

Margin requirement -$2112.00

Maximum collection if all strikes finish in the money -$20,500

Feeder Cattle Hedges

Buy the October 2026 Feeder cattle 340 put and sell, the Oct feeder cattle 300 put for 700 points or $3500 per spread plus commissions and fees

Sell the March 27 soybean 13/12 put spread for 85 cents for a $4250.00 collection per spread less trade costs and fees.

Collection upon entry on this spread package is $750.00 less trade costs and fees.

Maximum risk is $4250 plus trade costs and fees.

Margin -$2371 

Maximum collection -$24250.00 if all strikes finish in the money at expiration.

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

312 957 8103

888 391 7894 toll free

312 256 0109 fax

slusk@walshtrading.com

www.walshtrading.com

Walsh Trading

311 S Wacker Drive Suite 540

Chicago, Il 60606

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