Cattle & Ranch Report
April 9, 2025
Live Cattle:
This morning’s spread to place an 850# steer on feed against marketing them into the October time frame starts at $101.35 as I write this. More participants continue to leave the playing field. Close to 38K contracts have evaporated in the past 3 trading days. Basis is dangerously wide, leading to great expectations of cash falling to futures, or futures rallying to cash. I recommend you use today to adjust short call options positions if feasible. That being, if you have collected more than half of the short call premium, consider buying that back, and selling an out of the money put for the same premium that remains in the call. This is a sales solicitation. You will be swapping your risks from a synthetic short futures position to a bear put spread. This will reopen the top side for potential higher price movement, but cap the downside protection at the level of the short put strike. You will then be assuming further downside price movement were it to materialize. If you need help with this, whether a client or not, call us and we can help.
Feeder Cattle:
I recommend you prepare for a collapse in some form or fashion of the bids for incoming inventory from cattle feeders. The illogic is being noticed by the lenders and seemingly they are attempting to strengthen their position with so much of their capital wrapped up in a leather bag. And they are not even Gucci leather bags. Consumers are believed shifting again, very uncomfortably, in their discretionary spending. They are doing something about their situation. Grocers and restaurants are expected to pass the higher box price right along to the consumer. They are doing something about their situation. Packers have cut slaughter pace in an attempt to elevate box price and back cattle up to gain more. They are doing something about their situation. Cattle feeders continue to bid the highest price for incoming inventory in history, creating the widest starting spread between feeder and fat, all the while economic conditions are shifting rapidly and there is no price available in the future to profit from. They are not doing anything about their situation. If they don’t do something quickly, or significant, I fear lenders could pull the plug or worse, the current spreads expose issues that have been masked by the ever-higher price being paid. Then, it would be too late for the lender.
There is a very unfortunate aspect to all of this. That is, no amount of hedging will help you out of poor business decisions.
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