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January 27, 2025
How we go from record Feeder Cattle prices…
To an outright Collapse
One - Anyone who buys a load (50,000 lbs)
of 800 pound steers to put them in a feedlot for about
6 months is looking to add about 700 pounds to them. They PAY for the steers
and PAY to have them fed, with the intention of selling them as 1500 pound,
ready-for-slaughter Live Cattle…at a price that nets them a profit after
deducting what they spent for those steers and all the expenses feeding and
caring for them.
Two – Buying Feeders is a business, but it is also a BET
that will generate a profit…in that when you buy those steers, you are betting that
Cattle prices, which are notoriously volatile, will STAY up enough for six
months to make money…
Three – These are real
numbers, based on Friday’s markets as to how the process actually works between
buying the Feeders…and selling them about 6 months later.
|
Buy I “load” 800 lb. Steers (about 60) |
$2.78 cents
per lb. |
Pay $2224
each x 60 Steers = $133,440 |
|
Cost to
gain 700 lbs. (feed, medical, space) |
$1.00 per
100 lbs. |
Spend $700
each x 60 Steers = $42,000 |
|
Six months
later – Sell Load - August 2025 |
|
Total spent by sale date = $175, 440 |
|
Aug 2025
Live Cattle Future close Friday (current
expected sale price in August) |
$1.94 + .02
= $1.96 per lb. (est. basis
difference added) |
60 steers x
1550 lbs. = 90,000 lbs. 90,000 lbs. sold x $1.96 = $176,400 |
Again,
these ARE real numbers…meaning that anyone who was buying Feeders Friday, was basically
spending a lot of money with the idea that if August “Fat Cattle” prices stay
at $1.94 a pound, they would profit about $960 on a $175,440 investment…which
seems like a big risk for a very small potential gain.
So, WHY would they??? Two major “reasons.” One, because
today’s cash market is a good 10 cents higher than August futures…into new
all-time highs, somewhere around the $2.07 - $2.10 level…which, believe me,
inspires the hope from today’s feeder buyers that they will at least get that
much in August…And two, and this is the biggest reason, BECAUSE EVERY BIT
OF NEWS, ANALYSIS AND “LOGIC” THEY HEAR, READ AND SEE REGARDING FUTURE CATTLE
PRICES IS NOTHING BUT BULLISH…STILL POUNDING AWAY ON THE SUPPOSEDLY BULLET PROOF
IDEA THAT THE CATTLE HERD IS THE “SMALLEST IN 70 YEARS,” AND THEREFORE, CATTLE
“JUST CAN’T GO DOWN FROM HERE.”
BUT
WHAT HAPPENS WHEN CASH LIVE CATTLE (SLAUGHTER WEIGHT READY) DON’T GO HIGHER…AND GOD FORBID, EVEN
BEGIN TO SLIP A LITTLE FROM HERE?
Here is that August contract, which made new all-time highs
on Friday…and how the numbers work if futures DON’T keep going higher…
And do KNOW that it can…and I believe, probably WILL…get a
lot worse than just down 10-12 cents in Live Cattle…A LOT worse.
The point is, anybody buying the real Feeders up here has to
be doing so almost blindly…totally caught up in the “THE BULL STORY” and maybe
in a FOMO sort of way…And when you get down to the real numbers and that they
HAVE to see prices keep climbing to just avoid LOSING money, what you really
have is a ton of people “betting on the come.” And in futures, and their
underlying markets, THAT can be is disastrous.
But what I’m really getting at is that if/as Live Cattle
prices start sliding AT ALL from here, you ARE going to have a world of FORMER
Feeder Buyers beginning to lose money…and I promise you, at least some major
percentage of those people, already losing AND having no idea of how bad it
could get…WILL NOT BE THERE FOR WHAT MIGHT HAVE BEEN THEIR NEXT NORMAL CYCLE OF
BUYING. In other words, going forward, buyers would be blinking, hesitating,
backing off…however you want to put it. And at these levels? When the buying
wanes? Or practically disappears?
THAT’S WHEN FEEDERS DO REALLY AND
TRULY GO STRAIGHT DOWN…EXACTLY LIKE THOSE 50 YEAR FEEDER CATTLE TOPS I’VE
REPEATEDLY SHOWN YOU.
As classic as it gets?
After Friday’s close, the USDA released a much anticipated
Monthly Cattle on Feed Report, the data of which was widely regarded as “more
bullish than expected,” thus spurring calls for futures to be as much as $4.00
higher today…But they did NOT…Feeders made
new highs, but closed lower, creating a potential Key Reversal…and
August Live Cattle traded about 2.3 cents higher but closed up only .75.
And you can call me nuts…But this could be as classic as it
gets…It might seem strange, but I will swear to you that, more often than not,
bull markets do NOT turn around based on some surprisingly bearish report…Quite
the contrary…They frequently turn on around on news, events, or reports that
provide “evidence” suggesting, “Hey everybody! There just ain’t
any left!” In the interest of brevity, I’ll just say it’s based on the fact
that markets DO reach the point where EVERYBODY who could/would be long
already is…AND I CAN ONLY VIEW TODAY’S REVERSAL AND LOWER CLOSE AS INDICATING
THAT IS WHERE WE ARE…
More so than ever, I see this
market as a massive, massive SHORT…a once a decade sort of trade…And do not
think that just because I have been wrong, I still will be. I urge you to
contact me and put something on here.
The next Nvidia? The next bullet proof bull market that
isn’t?
And DO keep in mind all those charts I’ve been showing you
of how Feeders DO make “V” reversals…that is they turn, literally from one day
to the next and just GO.
LOTS of ways to go about this…Here is one…
Call me if you want to know more…
Thanks,
Bill
770-425-7241
866-578-1001
All
option prices in this newsletter include all fees and commissions. All charts,
unless otherwise noted, are by Aspen Graphics and CRB.
FUTURES
TRADING IS NOT FOR EVERYONE. THE RISK OF LOSS IN TRADING 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. THERE IS NO GUARANTEE YOUR TRADING EXPERIENCE WILL BE SIMILAR TO PAST
PERFORMANCE.
The author of this piece currently trades for his own
account and has a financial interest in the following derivative products
mentioned within: Feeder Cattle