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The PM Commstock Report

By: Commstock Investments, Commstock Investments

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07/24/2026

 

Another Year Ending in 6 Impacting the Cattle Industry?

PLEASE REFER TO THE BROKER COMMENTARY PAGE FOR UPDATES!!

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It was a long time ago, 1980 actually, when a Chicago Ag economy cycle's analyst (Jake Bernstein) got me motivated to become a market analyst and eventually start this company.  He correctly forecast Ag's economic top in 1980 to an uncanny degree making me one of the few who was told what was coming even though there is only so much you can do to prepare for an Ag depression like that. Some define a recession as "your neighbor going broke" and that a depression is "when you go broke." I know they make it sound like the Ag economy is in a depression in the click-bait of you-tube videos and crop margins are tight but by definition we are not in a recession, forget a depression yet in NW IA. I should emphasis the word "yet". We have had good production in our region receiving USDA ACHs and are getting by. My neighbors are not going broke. That comes from someone who has lived through one. In an Ag Depression you can sell the stock of the Ag bank you borrowed money from and pay them back on the gains of shorting their stock as that bank failed. Ag banks still appear healthy. Given the average age of a rancher being 60 years old, they have been through a few cycles so are experienced.
 
Another forecast made in 1980 that I believe has held true enough is that years ending in 6 have typically not been good for cattle producers. Then we were looking back at 1976 and forward to 1986. I believe that if you fed cattle 9 of 10 years, skipping the ones ending in 6, that your long-term net worth may have become considerably larger. It is based upon the cattle cycle which used to be 10 years. Arguably the cattle cycle has changed but markets have an uncanny way of repeating themselves. The Covid pandemic was the real ball-breaker for the cattle industry this decade so it is hard to see how 2026 could be worse. Yet we have seen cash cattle prices fall $25 hrd in the past few weeks. That is $375 head on a 1500 lb steer. That steer just went through a heat wave that would nix further weight gain if they didn't shrink, meaning cost of gain soared. That means that even hedged cattle start losing money. Bedded barns pay for themselves in this kind of heat. This incentive to move cattle (105^ in desert KS) likely contributed to market weakness but now losses will also make fed cattle owners reluctant to sell. My advice would be to get wheels under them. You don't know that there is not another $25 hrd loss ahead yet.
 
We have just gone through the greatest boom in the cow-cattle industry ever. Livestock producers have been profitable and have not been part of the recent malaise in net farm income. Not that 2026 has been all that profitable for feedlots because of high feeder cattle prices producing lofty feedlot break-evens but feeder cattle sales receipts were a windfall. Feedlots paid too much for feeder cattle a few times already in this cycle to keep pens full yet the cash cattle market rose producing surprising profitability despite that. That is not going to happen every time. Current market weakness is seasonal. Demand held up through all of the consumer holidays that feature beef, and post July 4th has now entered the summer void. When is Labor Day?
 
The first half of 2026 was pretty good for cattle producers...not so for packers. Packers have been losing their rear end in the cattle kill business although packers who integrated meat proteins have covered the beef loss with profit from pork and chicken operations. They have shut some beef plants and curtailed kills hoping to better balance kill capacity with supply. Packers showed no mercy in bids to producers during covid so we are not the least bit empathetic to their losses now. R-calf did win a class-action settlement from packers in MNPLs district court. Cargill had subpoenaed me for what I had written about the market then when in discovery but the settlement reached ended that. However, it is sort of amusing how they are losing $hundreds of millions and the politics in Washington has turned against them, accusing them of collusion and more. They collude whenever they get the chance and the fundamentals let them. This administration is for sale so the meat packing industry, unlike tech, oil or or crypto industries, evidently doesn't know where to send the check. When Tyson and JBS buy Trump meme coins you know they have found the combination. I do not know if this administration will actually do anything about packer concentration but at least they talk like they might. What would they do? Subsidizing small packers with $millions in taxpayer funds has not had a good track record of success. More on that coming in a future report.
 
Beef demand held up remarkedly well during the first half of 2026 despite record high prices and a president that was telling consumers that he would get beef prices down. He is not all one way with tariffs. He opened up for beef imports which primarily impact the hamburger market. The US feedlot industry adds tallow, which given record weights we have plenty of, to imported lean beef making hamburger. They have not allowed the importation of Mexican feeder cattle yet but with the screwworm having crossed our border that should eventually happen. The USDA wants to make sure everyone knows that they were not responsible for the worm but actually they were in the long-term perspective. After controlling the screwworm all the way down to Panama, in what was a multi-administration bipartisan mistake, they shut down 2 of 3 sterile fly labs which eventually resulted in the resurgence of the screwworm and now are spending big bucks building a new sterile fly-making lab. Closing the border to Mexican feeder cattle probably did not impact the US beef supply as much as you would think. We would import their feeders, finish and process them here and then export the beef back to Mexico. Our feedlot and packing industry were more efficient but was the middleman.
 
The cattle industry has been struggling to expand in this cycle. The Jan 1rst beef heifer inventory was up .9%, not enough to support a strong pulse of expansion. Knowing that the industry was not expanding is incentive for some to do so. The cow-calf profits were certainly there for expansion but the climate pushed back. There is likely to be some forced liquidation in dry country like Colorado. There is nothing there to graze. A huge amount of the US (over 60%) has sustained drought over the past few years so that there was forced liquidation when it was not economically justified. That makes it difficult to support a larger herd. I like the idea of allowing CRP to be grazed. Feedlots compete with ranchers thinking retention to buy their heifers to instead go on feed.
 
The industry compensated by expanding beef-on-dairy and by adding days on feed pushing cattle to record market weights. Some say the dairy industry became a beef producer that also produces milk as a by-product. The dairy cross animal makes a poorer ribeye. Don't know how big that they can feed these animals but the entire industry shifted to handling heavy weights…larger carcasses with more yield grade 4/5s that the industry was penalized for in previous decades. Almost all fed cattle now grade choice/prime (90%). When feeder cattle prices set record highs, feedlots compensated by adding 8% per head to days on feed and 20-30 lbs head to fed cattle weight than the previous year. This kept pens full. The days on feed will impact numbers on feed in the cattle-on-feed report released Friday too. The percentage of heifers as a percentage of slaughter has come down to just over 48%. Can't retain heifers and keep the large numbers on feed.  We have never gone through a cattle cycle with Livestock Revenue Insurance before which has become another risk management product sold by our company. I wish we'd have had that back in previous cycles for years ending in 6.
 
The USDA is releasing another cattle inventory report after the markets close at 3 p.m. Friday July 24th. Now with beef and cash cattle prices plummeting, many have responded by saying "nothing has changed…the fed supply is still tight". It is, but a market as extended as this one now requires little change for huge swings. A rubber-band snaps back. Consumer demand has held up remarkedly well but steak has been priced out of many consumers' diets and the spending of the wealthy may track the stock market which has become vulnerable. Will the inventory report show herd expansion? Ranchers are resourceful businessman. My bet would be "yes". Ranchers are well heeled, resourceful and eventually will retain some heifers. The beef-on-dairy thing is a big deal as well. The dairy industry has become the "cheeseburger" industry. The advent of expansion would actually tighten available feeder cattle further until the new heifers produce calves becoming cows and their calves reach market in the spring of 2028.  There will be time in this cycle for feedlots to pay too much for feeder cattle yet. They will think that losing money on the first round of feeders was a fluke. Years ending in 6 have also provided buying opportunities. Patience.
 

Trade and Hedge Strategy 07/23/2026

 
Wheat Rally Looked Long in the Tooth
 
On The Grains:
 
Corn and soybean futures lacked the leadership from wheat that they had been benefiting from since the start of the month. There were signs of momentum waning on Wednesday when wheat rallied on reduced volume, something possibly marking the final stages of the short-covering campaign. Managed money was still net-short Chicago wheat as of the last reporting week, so fresh headlines involving the war in Ukraine encouraged more of a rush to the exit. Technical signals also suggested a potentially overbought market from wheat futures poking above their upper Bollinger Bands on both the daily and weekly perspectives. Wheat may still have plenty of upside in the long-term as long as global conflict continues to proliferate, but corrective settling should not be ruled out for the short-run; same for corn and soybeans. Corn still lagged behind soybeans and wheat, but December corn futures were also approaching close to the $5 mark where additional farmer selling may coincide with speculators taking profit. Soybeans are similarly up at a key chart point with the November contract near $12.50, which provides a $12+ cash bid for many areas of the Midwest. Weather was still supportive for the coming return of heat and limited rain in the 10-day outlook across the West. The factors of demand held supportive with a soybean flash sale this morning and higher crude prices that sharpened up biofuel margins again.
 
Dec Corn:     487'4  +2'6
Nov Beans: 1243'6  +4'6
Sept Oats:    332'4  -6'2
 
Sept Spring Wheat:     729'6  +0'6
Sept Chicago Wheat:   696'2  -9'0
Sept KC Wheat:           759'6  -3'6
 
On The Livestock:
 
Selling pressure at the start gave way to a turn back higher for cattle futures, although the strength may have been attributed more to short-covering than to fresh buying interest. Traders were wary about being bullish before seeing how the beef market would develop following two days down hard, and there was even greater caution ahead of the Friday afternoon reports, including the monthly Cattle on Feed and the semi-annual Cattle Inventory updates. Showing the degree of uncertainty about what to expect for the overall herd size trend, the range of estimates for placements in the Cattle on Feed report was from down 6 percent to up 6 percent. 
 
August Feeder Cattle:        $343.77  +$2.60
September Feeder Cattle:  $339.85  +$3.65
August Live Cattle:        $225.40  +$2.20
October Live Cattle:      $221.37  +$2.17
 
Real-Time Feeder Index:   $347.51  -$2.22
 
A quick return of strength in pork cutout values helped turn hog futures around mid-morning. The August contract stopped a nickel short of posting an outside reversal up. Before the rebound, it had looked like the upside momentum was slowing following gains in four of the previous five weeks. August hogs held above $100 but were still closer to their June low of $93.97 than to the March high of $112.15. Fundamental support was offered by the resilient pork trade and the upward inching of cash hog prices. Traders questioned whether a trough had been established for production ahead of the seasonal upturn expected into the fourth quarter. Friday's cold storage update will shed light on the status of pork inventories counted right before the Fourth of July.
 
Midday Cutout:           $106.72   +$3.22
Aug  Lean Hogs:         $102.15   +$0.70
Oct  Lean Hogs:           $88.90    +$0.55       
 
 
Trade Recommendations:
07/10/26- Added to March corn/wheat spread at $2.
 
06/23/26- Buy March '27 corn/Sell March '27 Chicago wheat at $1.80 spread or better. This traditionally runs closer to $1-1.20, so has a 60-80 cent potential from current level, but we will look to add to this position if it trades up to the $2 level. Contact your CommStock broker with any questions.
 
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The views and opinions expressed in this newsletter are those of the author and do not reflect those of R.J. O'Brien & Associates LLC.  This report may contain political opinions as well as market opinions and commentary. Any content provided by Commstock Investments or authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. 

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