COUNTER-SEASONAL PRICE ACTION IN FEEDER CATTLE
By Don Close, Senior Animal Protein Analyst Terrain
For anyone hedging cattle positions, buying August feeder cattle futures somewhere from March to May and holding those long positions until mid- to late-August has been a highprobability trade. But that position is all but certain to not work this year. The August contract will likely expire lower than the spring high. Why?
The simplest explanation is the market was overextended for a long time and due for a correction.
No One Bet on This Big of a Break
The correction in live and feeder cattle, both cash and futures, has been deeper than I would have expected. But several compounding factors have made this August contract an outlier for hedgers.
For one, the market has been so strong for so long that there were no longer any meaningful probabilities for long speculative position holders. The market needed recalibration to create opportunity.
Cattle feeders and stocker operators had watched prices rally for so long and hedging opportunities had been so poor that they simply didn’ t believe the market was going to correct to the magnitude it has. Well, for both camps, it has.
Meanwhile, the exceptionally strong basis in live cattle futures with an even steeper discount to the deferred live cattle contracts made hedging feeder cattle all but impossible. As the realities of trying to buy and hedge feeder cattle at that big of a premium to spot cash became clear, the subsequent break in cattle futures simply became too much for the market to withstand.
Around the time that the basis problem was addressed, the
first of the summer video sales were taking place and it became clear feeder cattle prices were correcting, with no signs the break in the market was going to be over soon. Pessimism was breeding more pessimism.
Then on July 24, Secretary of Agriculture Brooke Rollins announced the border crossing at Douglas, Arizona, would reopen on Aug. 24, with intentions to open the border crossings in Santa Teresa and Columbus, New Mexico, soon after. Even with some crossing locations still closed, the reality that additional feeder cattle would soon be re-entering the supply chain put more pressure on the market.
Where Do We Go From Here?
It is easy to take the view that the long bull market is over. Consumers’ willingness to pay is being tested. The increase in feeder cattle availability with the border reopening will increase cattle and beef supplies. Herd expansion may not be fully started but is turning.
However, I am still not convinced this market has peaked. We know from the recent calf crop estimate in the USDA Cattle Inventory report that supplies of cattle will be tighter in 2027 and potentially in 2028.
The easy part of the rally may be over. From here on, volatility will be incredibly challenging but, indeed, the rally will continue. Terrain is a team of economists who provide expert insights to the customers of AgCountry Farm Credit Services, American AgCredit, Farm Credit Services of America and Frontier Farm Credit. Learn more at Terrainag. com.
26 SEPTEMBER 2026 www. NCBA. org