In 1578, the young King Sebastian I of Portugal marched toward what is now Morocco on a military campaign. The operation ended in complete failure: the Portuguese army suffered a crushing defeat, the king never returned to Lisbon, and Portugal plunged into a severe succession crisis.

The process culminated when Philip II, King of Spain, also assumed the Portuguese crown, marking the beginning of the Iberian Union.

Because Sebastian's body was never found, a myth emerged among an impoverished and disheartened population: Sebastianism, the belief that one day the king would return, reclaim the throne that was rightfully his and, in doing so, restore Portugal to its former glory.

The legend persisted for centuries. The king, however, never returned. There are those who believe that even today, in 2026, Sebastian will return to Portugal...

This historical background provides a useful comparison for understanding a kind of modern-day Sebastianism in Brazil's live cattle futures market. In this case, there is one major protagonist behind periods of extreme volatility and movements more aggressive than usual: China.

Last year, before the safeguard measure was officially imposed, the market reacted negatively to speculation on several occasions. Even when fundamentals pointed in another direction, the live cattle market stalled amid expectations surrounding the announcement. This year, with the measure already in effect, the context is different.

First, Brazil made several unsuccessful attempts to negotiate greater flexibility with the Chinese, seeking access to quotas assigned to other countries. That possibility was promptly rejected by Chinese customs authorities.

Current speculation points to an early resumption of beef exports to China, with Chinese importers concerned about securing a larger share of the 2027 quotas and considering longer shipping routes under which Brazilian beef could take more than 100 days to reach Chinese port terminals.

On September 7, the week's main market rumor was that Brazilian exporters had once again approached Chinese importers and were exploring new negotiations, again considering longer shipping routes.

What appears to be preventing those deals from moving forward is a disagreement over prices. Importers are seeking to purchase beef at around US$6,000 per metric ton, while Brazilian exporters are looking to negotiate at prices starting at US$7,000 per metric ton.

China fuels volatility in cattle futures

In 2026, speculation involving China has typically translated into sharp increases in Brazil's live cattle futures market. In the example just mentioned, exchange-traded prices are significantly above indications in the physical, or cash, market.

According to the latest Safras & Mercado Price Indicator, the average price in São Paulo reached R$348.75 per arroba (approximately US$68.60/@) on September 8, while the September futures contract was trading above R$360/@ (approximately US$70.80/@).

Is mere speculation about China resuming purchases enough to justify such a significant divergence in prices? At first glance, no.

This movement will eventually require a correction: either the futures market will move toward alignment with the cash market, or cash prices will rise toward the levels currently observed in futures.

Current market conditions, however, do not suggest that an immediate convergence will occur through a sharp rise in cash cattle prices.

Prices have indeed increased in the physical cattle market, but not to the same extent as in futures. Cattle producers, excited by the rally, are beginning to envision live cattle reaching R$400/@ (approximately US$78.65/@). But is this enthusiasm really beneficial?

Futures prices create a hedging opportunity

The current environment is particularly attractive for more disciplined cattle producers. Current futures prices offer a good opportunity for protection. Using the tools available in financial markets to secure operating margins appears to be a prudent strategy.

Euphoria can often delay decision-making when producers expect prices to continue rising indefinitely. The problem lies precisely in the market's dynamic nature, which may suddenly require an entirely different strategy.

In an environment so sensitive to news - and in a year in which geopolitics has become a key variable in interpreting market movements - any new fundamental factor could prevent current expectations from materializing.

As the old saying goes, a bird in the hand is worth two in the bush. It is precisely in this context that hedging needs to become a more consistent part of Brazil's beef cattle industry.

Cattle producers therefore need to use the current enthusiasm to their advantage.

November and December futures are already trading above R$380/@ (approximately US$74.73/@), while October remains firmly above R$375/@ (approximately US$73.75/@).

These price levels offer an attractive margin outlook in a year when replacement cattle and feed costs are increasing.

The chart accompanying this article clearly illustrates the difference between the cash and futures markets. The margin available for producers to lock in prices is becoming increasingly attractive.

The question now is whether Brazilian cattle producers will seize the opportunity - or continue waiting for King Sebastian to return.

By Fernando Iglesias: Economist specializing in agribusiness and agricultural markets at Safras & Mercado.

Editor's Note: This opinion column was originally written in Portuguese. The AgroLatam editorial team translated and adapted it into English, preserving the author's original analysis, data, opinions and perspective. Brazilian-real values have also been accompanied by approximate U.S. dollar equivalents for international readers, using an exchange rate of roughly R$5.09 per US$1, based on the September 8, 2026 exchange rate published by Brazil's Central Bank