Shootin' the Bull about squeezing cattle feeders margins

“Shootin’ The Bull”

by Christopher B Swift

1/15/2026

Live Cattle:

An over 3 to 1 gain of feeder prices over fats today continues to increase negative margins. The extent of risk being produced by this spread, along with the near, if not already, historical price in some weight categories, is taking place today.  As uncomfortable as it may be making marketing decisions, with a "right" or "wrong" seemingly always attached to it, the risk you have already assumed, upon purchase, creates a must of having to market the same product, just at a heavier weight.  With futures basis in a negative spread, whether you think it is "right" or "wrong" to market some inventory, today's pricing structure is believed favorable to produce a minimum sale floor with an at the money put option for 2% of the value of the contract into the first few days of April, with ability to exercise and remain short into expiration.  As well, due to the basis being negative, if subtracting the premium from the strike, you'll find it is right at last week's cash trade of $232.00.

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It appears that volume of sales are increasing significantly year over year in January.  Any volume over last year will be expected to have some percentage increase in placements.  Hence, I anticipate January '26 placements to be higher than January '25.  This puts the crosshairs on the June contract, with an already, but not abnormal, hair cut of just under $5.00.  Unfortunately though, May through July fat cattle will have been placed at near, if not record highs, of feeder cattle. A few quick key punches on the calculator suggests at the index price plus 700lbs of gain at $1.00 per pound, suggests about a $215.00 per head loss at today's price of June fat cattle.  The June at the money put is approximately 3.7% of the value of the contract.   

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Feeder Cattle:

Cattle feeders are believed having to compete with the excessive amount of production capacity available to all of those outside of cattle feeding.  Pastures of all kinds are abundant, and from Monday's WASDE report, feedstuffs are not in short supply. So, backgrounders are believed having to shift in production schemes to buy whatever is available and attempt to put some pounds on and hope the price continues to move higher.  All of this to the dismay of cattle feeders where the margins are more set and the finished price of their product depending greatly upon demand for beef. Lighter weighted animals that fit into the CME index are higher, and the heavier a little soft. This may be what is keeping the index strong, but not moving sharply higher.  

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The close proximity to contract or index highs makes testing or exceeding these levels not much of an event any longer. Backgrounders are fighting over less inventory available to the open market.  They are changing production schemes to purchase and grow what is available, and paying top dollar for.  All of which leads me to anticipate a contraction in production capacity may come before more cattle are made available to work with.

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​Corn:

Another lethargic day in grain trading. Beans were a tad higher, but only due to the strength in bean oil.  The soybean crush remains elevated, due to soy oil demand, but that is causing bean meal to plummet as pork and poultry production is perceived as pretty stable, with no expansions on the horizon. This makes the rally in hogs even stranger in that the pork industry has developed a like feeding pattern to hogs, raising carcass weights, producing more pork.  And yet, hog futures are sharply higher, at new contract highs with the index down again today and a wider negative basis spread.  Note that with cheap feed, weights of all meat protein animals will be anticipated to get even bigger, potentially creating a year over year increase in total meat protein production.  If the 1st quarter is supposed to be the tightest supplies, then a combination of more cattle placed on feed in the 1st quarter, and at heavier weights, beef production is expected to be equal to, if not higher than, last year.   

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Energy:​

Energy started its plummet at 2:00 on Wednesday.  Apparently, something changed in the narrative, abruptly, and energy prices are still moving lower as I write this.  Again, this only reflects the difficulties many companies are having to deal with, due to the high volatility and price expanse in multiple commodities.  Barring episodes of further saber rattling, I anticipate energy to resume it's previous down trend.    

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Bonds:

Bonds were soft today with little follow through on Wednesday's push out of the triangle to the upside.  Again, another example of how volatile markets in general have become, along with great price expanse in some.  Metals and meats are the only commodities at the top end of their price ranges.  The commodity index is just a few tics from a 50% retracement of the decline that started in June of '22 and ended September of '24.  The definitive push higher of the commodity index didn't come until August of '25 and that is when the metals started up and meats continued to climb.  Today, with only metals and meats at the top end of their price spectrum, it suggests either these commodities are way over priced, or all other commodities are under priced.  Regardless, though, were metals to find a top and with energy and grains lower, the commodity index would be anticipated to drop significantly.  The chart on the Bloomberg Commodity Index is below. 

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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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