Cattle Closes with Limit Losses Nearly Across the Board

Live cattle and feeder cattle futures plummeted on Friday, hitting daily limits amid softening cash trade and a declining CME Feeder Cattle Index, prompting expanded trading limits for Monday. This sharp market correction occurs as Commitment of Traders data remains unavailable, obscuring managed money positions, while a report suggests Mexico's ag ministry will discuss reopening its border to cattle imports, a development that could significantly influence future supply.

Analysis

Live cattle futures experienced a significant downturn on Friday, with most contracts hitting their $7.25 daily limit, and the October contract falling $233.75 for the week. Feeder cattle futures also saw a broad $9.25 limit down move, reflecting strong bearish momentum. This sharp correction is further evidenced by the CME Feeder Cattle Index declining $3.54 to $367.08, indicating a weakening underlying market.

The market's decline is occurring amidst softening cash trade, with prices settling at the lower end of the $238-240 range. The absence of Commitment of Traders data due to the government shutdown creates opacity regarding managed money positions, though long liquidation is suspected. Expanded trading limits for Monday suggest expectations of continued volatility.

A potential shift in supply dynamics is emerging with reports of Mexico's ag ministry discussing reopening its border to cattle imports, which could increase supply. This contrasts with USDA federally inspected cattle slaughter, estimated at 573,000 head, which is 52,186 head below last year. Interestingly, USDA Wholesale Boxed Beef prices rose, with Choice up $2.62 to $375.76, indicating robust demand at the wholesale level despite futures weakness.

Key Decisions for Investors

• Monitor Monday's trading for continued volatility and potential further downside in live and feeder cattle futures given the expanded limits and strong bearish sentiment.
• Exercise caution regarding managed money positioning due to the absence of Commitment of Traders data, which suggests potential for further long liquidation.
• Evaluate the implications of a potential reopening of the Mexican border to cattle imports, as this could significantly alter supply dynamics and pressure futures prices.
• Observe the divergence between falling futures prices and rising wholesale boxed beef prices, which may indicate a disconnect or differing demand signals across the supply chain.