Cattle Bulls Look to Continue Climb on Thursday

Live and Feeder Cattle futures rallied significantly on Wednesday, with Live Cattle gaining $2.20-$3.50 and Feeder Cattle up $5.22-$5.70, despite quiet cash trade and no sales on the Fed Cattle Exchange. This comes as the market anticipates Friday's USDA Cattle on Feed report, projected to show substantial year-over-year declines in July placements (-8.9%), marketings (-5.9%), and August 1 on-feed inventory (-2%), indicating tightening future supply. Mixed boxed beef prices and a year-over-year decrease in cattle slaughter volumes further support this outlook.

Analysis

Live and feeder cattle futures experienced a significant rally, with live cattle contracts gaining $2.20 to $3.50 and feeder cattle contracts soaring $5.22 to $5.70. This upward momentum appears primarily driven by market anticipation of Friday's USDA Cattle on Feed report, for which analysts forecast a substantial year-over-year contraction in supply. Projections indicate July placements will be 8.9% lower, marketings down 5.9%, and the total August 1 on-feed inventory down 2% from the previous year. This bullish supply-side outlook is further supported by a significant year-over-year decline in the weekly cattle slaughter, which was down 27,316 head despite a slight week-over-week increase. However, the physical market presents a more nuanced picture. While some northern cash trade saw prices increase by $5-7, the overall cash market remains quiet, and a recent Fed Cattle Exchange auction resulted in no sales. Furthermore, wholesale boxed beef prices were mixed, with Choice boxes declining $1.35 while Select grades rose $3.40, narrowing the quality spread and suggesting some complexity in end-user demand.

Key Decisions for Investors

• The market is heavily pricing in a bullish USDA report; investors should be cautious of a potential 'sell the news' reaction if the data on Friday fails to meet or exceed the strong expectations for supply contraction.
• Monitor the divergence between rallying futures and the mixed physical market, as a failure of cash prices and wholesale beef values to follow the futures rally could indicate the move is overextended.
• Given the anticipated tightening supply, consider strategies that benefit from higher price volatility, but remain aware that the lack of sales on the Fed Cattle Exchange auction points to price resistance in the immediate cash market.