Cattle Rally to New All Time Highs on Tuesday

Live and feeder cattle futures posted significant gains on Tuesday, with contracts rising up to $3.40 and $5.65 respectively, driven by indicators of tighter supply and strong domestic demand. USDA data showed cattle slaughter down notably year-over-year, while wholesale boxed beef prices increased. However, June beef export figures registered their lowest total since 2020, suggesting a mixed demand picture with international weakness contrasting domestic strength.

Analysis

Live and feeder cattle futures experienced a significant rally, with live cattle contracts gaining up to $3.40 and feeder cattle contracts rising as much as $5.65. This upward momentum is supported by strong domestic fundamentals, evidenced by a notable increase in wholesale boxed beef prices; Choice boxes rose $4.15 to $369.94 and Select boxes climbed $4.35 to $345.94, widening the Choice/Select spread to $24.00. The supply side appears constrained, as USDA's estimated weekly cattle slaughter of 216,000 head is down 22,589 head compared to the same week in the prior year. However, a significant counter-signal exists in the international market, where June beef exports fell to their lowest monthly total since June 2020. This divergence between robust domestic demand and weakening export demand creates a complex outlook, despite the currently bullish sentiment in the futures market.

Key Decisions for Investors

• Given the tight supply indicated by lower slaughter rates and strong domestic wholesale prices, investors may find continued support for long positions in cattle futures.
• Traders should closely monitor the divergence between strong domestic prices and weak export demand, as the June export low represents a material headwind that could cap further upside if the trend continues.
• The combination of rising futures and a quiet cash market suggests investors should watch for cash trade to confirm the futures rally, which would be a key indicator of sustained price strength.