In my opinion, normality is beginning to return to the cattle industry. The abnormal halting of cattle from Mexico, and the abnormal placement of tariffs, for reasons not associated with beef, are subsiding. With only the border left at question, cattle feeders will have to start looking for margins upon placements with no more ability to rely upon an ever-increasing price. Input costs will have to be scrutinized greatly or fixed in price when available. For the moment, the basis of feeder cattle appears to be greatly in the favor of cattle feeders. When considering where the least expensive inventory can be found, it is in every month forward in futures contracts. When viewing potential retracement price levels of the feeder cattle index, a range between $325.00 and $293.00 represents a .382% to .618% retracement of the rally that started in August of '24 to historical high. Most futures contracts on Friday's trade equaled or exceeded these price points, leading me to believe the futures have beaten the cash market to the levels anticipated. This leaves a significant divide between cash and futures with some expectations of futures helping to converge a portion of this wide spread. With the series of events that have already unfolded, the next few appear to be Fridays on feed report, and when the border may be reopened. The on-feed report is believed going to be somewhat friendly, however the recent acknowledgement of innumerable farmer fed cattle, that have increased the average carcass weight to a new historical high, could produce some push back on lower numbers on feed.
Recall that anyone can have 999 head of cattle on feed and don't have to tell a soul. How many of those are out there? Apparently, a bunch in western Iowa and eastern Nebraska. It will most likely take a few weeks to work through these heavier cattle as some have been touted at over 2,000#. The 983# carcass this week is a 1,585# live and I am under the impression that most commercial yards don't feed to those levels, due to commercial sales of cuts not wanting to look like a Brontosaurus steak that Fred Flintstone used to throw on the grill. All in all, it appears that rationing has done a great deal to help increase beef production with fewer animals, curtailed some spending habits on beef from consumers, and now with some normality in import/export trade resuming, could well resemble some sort of normality going into next year. While the President's comments may have aligned with the top the market, the ability to sustain such a stranglehold was bound to end ugly, regardless of who, what, or why. The next most probable move is convergence of basis.
With the anticipated loss of an ever-rising price for fats and feeders, margins will become the most important factor in cattle production going forward. Those margins are projected to be horrible for cattle feeders at current spreads. Feed, fuel, machinery, and interest rates will all have to be scrutinized more closely when procured. Corn made an effort to trade higher, and still may, but this week, traders took profits and some farmer selling was noted to clean up sales before years end. Diesel fuel made more new highs through the week, but by Friday's trade, had wiped out two weeks of gains. Crude oil is anticipated to be resuming a down trend. A lower trade of energy prices, especially if the higher trade in diesel was a onetime event, leads me to continue to see more signs of recession than inflation. Bonds firmed on Thursday and Friday; they have been more sideways than higher or lower. Expectations of a December rate cut are fading as economic numbers continue to reflect a strong economy, even with some industries not experiencing the same. This leads me to anticipate further divide between what has been labeled by some as a two-tiered economy.
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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