Shootin' The Bull about Vertical Integration of the Cattle Industry

Shootin' The Bull

Written by Chris Swift, Swift Trading

11-13-26

 

In my opinion, this week's trading centered around producers trying to stay in business.  This is a very difficult subject to discuss, as it deals with livelihoods and years of work to achieve the position producers are in. Business is vicious, regardless of what is attempting to be accomplished. The shortage of inventory is believed causing some to financially extend themselves to levels that may be difficult to recover from.  That is where I think we are in this well aged bull market cycle.  I think we have reached a level of attrition.  A time frame in which market share is desired, more than the risk assumed is feared.  An unfortunate aspect of this is that not everyone has deep enough pockets, or a lender to go along with them, to compete. I think a lot about vertical integration, the large parent companies that manage multiple restaurants, and mega retail outlets like Sam's and Cosco, that have few ways to manage beef price fluctuation. Noted is how the pork industry was able to consolidate into a vertically integrated supply chain by driving the price of hogs down to a level in which few could compete.  I think cattle are in reverse of this. Instead of driving the price down, the price is being driven higher.  With such, margins widen and input costs become more difficult to return.  This week pulled out all the stops for some, and I am anxious to see if projected margins increased or decreased with an expectation of an increase, due to the spread between starting feeder and finished fat widening between $5.00 and $8.50, depending on which months used. Closeouts this week may not change much with a higher price of feeder when placed, and unsure of cash trade this week as I write this.  

Technically, the wave 2 remains in progress with expectations of continual volatility and wide price expanse. When viewing the daily feeder cattle index, not influenced by anyone but a cattleman, shows 5 waves down from the 6/25/2026 high of $381.86 to the low of $326.98.  From there, the index rose to $351.43 in what is believed a 3-wave move. This pattern gives some definitive price points to work with that would change the wave count.  First, a trade under $326.98 index, would lead me to believe waves 1 & 2 complete and wave 3 down in progress.  A trade above $351.43 will be needed to help confirm a higher price, even if not going to exceed current historical high. Last week's low of $330.42 is crucial to hold above.  If exceeded, then the $326.98 will be expected to be exceeded. I understand this may seem like casting lots or looking for a crystal ball, but the Elliott Wave Theory is based upon human psychology and the index is about the only pure human interaction we can go by.  So, when the few rules there are break, it suggests to anticipate something else.  For the moment, the pattern suggests to anticipate more downside price movement.  A trade of the index above $351.43 will change the wave count.  To what, I am unsure until we see further price movement.  Two analogies of the bull market are, participants become the most bullish or bearish at the top or bottom, and price can top or bottom before fundamentals change to reflect such. With all this said, I have no idea to the extent someone will go to remain in the cattle business, but we are finding out right now. 

Corn may or may not have bottomed, but for the moment, it has stopped going down.  I continue to recommend fixing corn prices at levels you no longer wish to pay, and in the time frame needed for delivery.  Attempt to avoid feeding expensive corn to expensive cattle.  Diesel fuel is believed to have reversed back to the upside this week.  A trade of December above $4.36 will help to confirm this.  Diesel fuel appears to have completed a major wave 4 correction with expectations of a wave 5 to new contract highs.  All three are a little lower from last Friday's close, with gasoline the lowest.  I believe this is due to a direct influence from consumer demand. I continue to anticipate a higher trade in diesel, so keep farm tanks topped off.  Bonds plummeted this week with expectations of a rate hike, and maybe by as much as a half over a quarter.  I doubt this will slow inflation, but will do great damage to the housing market.  For the moment, the government continues to spend at an elevated rate, and there has been no increase in refining capacity or reduction of military actions.  Noting all of the above, jockeying for market share of the cattle industry, while facing dramatically shifting economics, could produce a wall of worry that maybe can't be climbed.  Visit www.shootinthebull.com for a free 30-day trial of our daily commentaries.

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