In my opinion, the Mexican border issue with the New World Screw Fly is a moot point. Friday's price action is believed directly associated to comments made that morning about the fly and its proximity to the US border. With over 15 months of the border having been closed, the Mexican cattle producer is believed to have fashioned feed bunks, imported US corn, and increased slaughter facilities to produce and process domestic cattle. So, with there not having been any more or less cattle, just where they are located, it suggests either the increase in domestic production would reduce US exports of beef to Mexico, or could possibly be that the US is privy to imports from Mexico. Either way, the cattle are there and beef is being produced, regardless of which side of the border. The issue of the US is that cattle production in the South is void of this production, but the cattle are still there. This simply exposes too much production capacity for the number of animals to produce. The sharp reaction to the futures market is believed the potential for quarantining counties or states, halting interstate movement of inventory in or out of the area. This has been discussed in the past when an episode of Anthrax naturally occurred in Wyoming a few years ago and movement was stopped for a few days to track down those cattle. As that was a natural event and very short lived, the impact was small. Friday's impact is largely due to excessive buying due to expectations cattle prices can't go down, creating wide negative margins for which, if not hedged, could turn into bankruptcy. As I have been ribbed often the past two weeks in my analysis to market inventory into this rally, today's price action proved it doesn't matter if one is right or wrong on their analysis, the risk is inherent and factors that are aged can still wreak havoc in a short period of time. Producers were made aware this week of the greatly improved negative basis in the fats, and somewhat improved positive basis in the feeder cattle. Now, if producers attempt to market, they will be exposed to a wider positive basis in the feeder cattle market and narrower basis, to non-existent, in the fats.
Previously, I have written about normality returning to the cattle market. This suggests to me not nearly as wide of trading ranges as we've seen the past 12 months. September of '24 was the last low of significance. From there, a rally of $ 148.17 via the weekly feeder cattle continuation chart. The decline then measured $81.50. So far, the rally from the November '25 low has been $69.18. Note the contraction taking place? This leads me to anticipate the next most probable move being lower by as much as $50.00 to $60.00 lower to continue with a sideways, contracting price pattern that marks time through the tightest supply of cattle and beef in the first quarter of this year. With sales volumes significantly higher year over year, it is anticipated that January placements may be higher than last year. If the marketing's remain low, I think it possible by March or April, the on-feed number goes even or plus. Recall, on feed numbers have only dipped barely below 11 million head twice in the past 36 months. Beef production is expected to increase as packers will be forced to do whatever necessary to bring margins back into their business. This leads me to anticipate manipulated slaughter rates to decrease beef production, raising the price for, and lowering cattle slaughter, lowering the price for. All in all, it appears the rationing over the past 3 years is finally starting to impact production in a manner that increases the likelihood for greater beef production and eventually expansion. Note that moving towards, what may be considered as normal, will suggest price ranges to narrow and that is the expectation.
Grains took it on the chin Monday with the WASDE report showing increases in all categories of production in corn, wheat and soybeans. The instant negative reaction caught farmers off guard as some had believed the report to be friendly. With no expectations of an increase in demand, especially from bio-fuels, and planted acres equal to last year, there isn't a great deal to look forward to. A higher ethanol blend would have to be approved by the car manufactures and I don't think they are in any hurry to retool plants for this. They have had to shift with every new administration, and lost billions on electric vehicles. So, don't look for them to be anxious to retool motors to run efficiently on E-15. Note how difficult it is to find E-85 and I haven't seen a Flex-Fuel vehicle in years. While this may seem as a bonus to livestock producers, I lean heavily on the old adage of cheap feed makes cheap cattle. To extend this a little further, cheap soybean meal makes for cheap hogs. Livestock producers are expected to try to grow their way out of negative margins, especially if prices fade. So, anticipate an increase in beef production after this tight first quarter is over with.
Energies were unbelievably volatile this week with a tremendous price range. Saber rattling is believed to have a lot to do with it. When an immediate response was not seen, it sold off sharply. By Friday's close, it was higher, but without a definitive shift in actions against Iran, I would anticipate the down trend to resume. There remains a great initiative for the President to lower food/grocery costs to consumers. How you do that without impacting commodity producers is the test we are currently in. Bonds continue to be volatile and in a well-worn range. I have expectations of them going lower due to the persistent core inflation, but the President wants lower rates and to continue to stimulate the economy. The combination of the two is believed keeping bonds in this range. Agricultural producers are at opposite ends of the spectrum between livestock and row crop, with many doing both. As well, beef/cattle production is at polar opposites as well with cattlemen benefiting greatly from the price rise of cattle, but packers deep in negative margins, unable to push beef out at higher prices. No doubt, this year is starting out with multiple factors at play that are expected to cause significant price fluctuation and volatility going forward. Be prepared.
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.
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