Cattle Fall on Wednesday

Live and feeder cattle futures declined on Wednesday, with June live cattle down up to 67 cents and feeder cattle down up to 50 cents, despite some cash trade reporting sales at $186-188.50. The latest WASDE report revised 2024 beef production down slightly by 5 million lbs but increased 2025 projections by 145 million lbs, indicating a potential future supply increase. Concurrently, wholesale boxed beef prices also fell, widening the Choice/Select spread, while daily slaughter remained stable week-over-week but below last year's figures.

Analysis

The cattle market exhibited bearish sentiment on Wednesday, with live cattle futures declining by as much as 67 cents and feeder cattle futures falling up to 50 cents. This price weakness in the futures market occurred despite relatively firm cash trade, where sales were reported as high as $188.50 in Texas, suggesting a potential disconnect between paper and physical markets. Fundamentally, the latest WASDE report introduced a mixed but forward-looking bearish signal; while the 2024 beef production forecast was trimmed by a negligible 5 million lbs, the 2025 projection was increased by a more significant 145 million lbs, signaling expectations of greater supply next year. This sentiment was reinforced by softness in the wholesale market, where Choice boxed beef prices fell 61 cents to $317.76 and Select dropped $1.69, widening the Choice/Select spread to $18.67. Conflicting with this bearish tone is the current supply tightness, evidenced by the weekly slaughter total of 367,000 head, which, while stable week-over-week, is 9,757 head below the same period last year.

Key Decisions for Investors

• Investors should note the divergence between tight near-term supply, indicated by lower year-over-year slaughter rates, and the bearish pressure on futures, which appears to be pricing in the USDA's forecast for increased beef production in 2025.
• Monitor the declining wholesale boxed beef prices and the widening Choice/Select spread, as this could signal softening consumer demand or eroding processor margins, potentially adding further pressure on live cattle values.
• Given the disconnect between firm cash sales prices and weaker futures, traders should watch for a convergence or divergence of this basis as a key indicator for near-term directional plays.