Shootin' the Bull about contraction in processing and expectations for production

“Shootin’ The Bull”

by Christopher B Swift

1/5/2026

Live Cattle:

In my opinion alone, and never to be confused with fact, is that cattlemen have and are attempting to surround themselves with as many cattle as they can carry financially, in hopes 2026 will produce a higher price than 2025.  It is easy to see this today as cattlemen continue to inhale negative margins with the only means of returning input costs is for a higher price.  With the higher price action of '25, and losses incurred,  rationing has begun to contract processing capacity.  I anticipate the same in production capacity as noted by other analyst's that some states have a lot more cattle than they use to and some have a whole lot less than they use to.  It will be anticipated that the states with reduced production will have the most likelihood of not making through this year.  

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Futures traders are of benefit to cattle feeders again with the shift in basis to negative in the front two contract months and even in June.  I get the feeling that the fear for 2026 is missing out on a higher price than fear of the price going down.  This leads me to anticipate less risk management and greater assumption of.  

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Not much has changed for marketing abilities into the future.  The June at the money put is approximately 4% of the value of the contract.  The gain in price from the 11/24 low June has been 15%.  Capturing 11% of the gain for 4%, with unlimited ability to trade higher, is believed an advantageous way to protect the bottom side and let the top side run.  If further gains are noted, then you can roll up the puts if able to justify the additional costs with the increased minimum sale floor.   

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Feeder Cattle:

​Cattle feeders bid feeder cattle higher nearly 3 to 1 today to their fat cattle counterpart.  Stating the obvious does not have any influence on price direction, but can reflect the amount of risks being assumed. The aggressive stance by futures traders on Friday and today, has shifted the basis to negative in them as well.  Now, backgrounders are able to market inventory into the future at a higher price than current cash. Option premium is about the same to a tad higher in the May feeder cattle.  The $352.00 strike is a dollar out of the money and 4.5% of the value of the contract.  The 21% gain in price from the 11/24 low can be captured for 4.5%.  If attempting to achieve a higher minimum sale floor and reduce the premium paid, one could enter into a fence options spread and own the at the money put and sell the $20.00 out the money call for a premium of 2%,, but give up the ability for unlimited profit potential.  There are more ways than one to skin a cat. ​

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The cattle market has experienced significant price volatility and expanse that has led to the rationing of processing capacity.  As cattlemen surround themselves with cattle in 2026, in hopes someone will be willing to pay an even higher price in the future, the same rationing that contracted processing capacity is expected to contract production capacity.  With retail beef hitting another new high, wholesale beef could rise, and to keep margin, grocers and restaurants are expected to pass this increase along to the consumer.  Grocers and restaurants have been the largest benefactor of the lower wholesale beef by keeping retail prices high.  Lastly, whether true or not, consumer spending has been noted to be of greater proportions by fewer, causing the inflated prices to be of more detriment to the lower income earners. Anything that might impact their spending habits would be anticipated to have a significant impact on consumer spending in general. 

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​Corn:

​All were higher today with beans potentially having fulfilled a 5 wave move down.  I don't anticipate this to be a bottom, but the first wave of a larger move to the down side.  The correction may mark some time and trade sideways to higher for a couple of weeks.  Corn, if goes up, will only be a thorn in the side of cattle feeders, now paying a mere $20.00 lower than previous all time high. While I am not in expectation of corn trading higher, it could and make negative margins even wider if going hand to mouth in feed needs. ​​

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Energy:​

​Energy prices were volatile with higher and lower trading through the sessions.  All ended a little higher, but this is not expected to last.  The liberation of Venezuela will increase the probability for greater oil production.  China and Russia will have to seek oil elsewhere now for the portions they will no longer be privy to.    ​​

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Bonds:

​Bonds were higher.  I have no idea why. The US dollar was lower, but not by much.  I anticipate bonds to continue to trade lower.  ​​

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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.

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