Cattle Looks to Wednesday after Tuesday Collapse

Live and feeder cattle futures experienced significant declines on Tuesday, with live cattle futures falling between $3.77 and $4.90 and feeder cattle futures dropping $6.37 to $6.87, accompanied by a decrease in open interest suggesting liquidation. Despite the futures downturn, boxed beef prices continued to rise, with Choice boxes up $4.40 to $383.51/cwt and Select boxes up $5.07 to $372.54/cwt; meanwhile, cattle slaughter estimates are down both from the previous week and the same week last year, and markets will be closed Thursday for Juneteenth.

Analysis

Live cattle futures experienced a significant downturn on Tuesday, with contracts falling between $3.77 and $4.90, indicative of broad risk-off sentiment. This was accompanied by a decrease in preliminary open interest of 1,394 contracts, suggesting some liquidation of positions. Feeder cattle futures saw even steeper declines, dropping between $6.37 and $6.87. For instance, August feeder cattle closed down $6.875 at $303.350. The CME Feeder Cattle Index reflected this weakness, falling $3.21 on June 13 to an average price of $313.89. In contrast to the futures market, National Wholesale Boxed Beef prices continued their upward trajectory in the Tuesday afternoon USDA report; Choice boxes increased by $4.40 to $383.51/cwt, and Select boxes rose $5.07 to $372.54/cwt, widening the Choice/Select spread to $13.97. Cash cattle trade had not yet commenced for the week, with last week's trades reported at $235 in Texas and $233-$238 in Kansas. Federally inspected cattle slaughter was estimated at 118,000 head for Tuesday, bringing the weekly total to 221,000 head, which is 10,000 head below the prior week and 15,714 head below the same week last year. Market activity will be paused on Thursday due to the Juneteenth holiday, which will also delay government reports.

Key Decisions for Investors

• Given the sharp decline in futures and negative sentiment, investors should exercise caution with long positions in live and feeder cattle futures in the immediate term, monitoring for signs of stabilization or further liquidation.
• The divergence between falling futures prices and rising wholesale boxed beef prices warrants close attention; this could present arbitrage opportunities or signal an impending correction in one of the markets.
• Monitor upcoming cattle slaughter data closely, as the current lower rates, if sustained, could provide underlying support to physical cattle and beef prices despite futures market weakness.
• Factor in the reduced market liquidity and potential for increased volatility around the Juneteenth holiday and delayed government reports when making trading decisions.