Cattle Strength Pushes Triple Digit Gains at Midday

Live and feeder cattle futures are rallying, with live cattle up $1.17 to $1.70 and feeder cattle up $3 to $3.15 in midday trading, while cash trade remains limited this week. The CME Feeder Cattle Index rose to $299.30 on May 29, and the latest Commitment of Traders report indicates that managed money slightly reduced their net long positions in both live and feeder cattle futures; USDA's boxed beef prices were mixed, with Choice boxes declining slightly and Select boxes increasing.

Analysis

Live cattle futures are exhibiting positive momentum, advancing $1.17 to $1.70 on Monday, with June 25 contracts at $216.650, while feeder cattle futures show a more pronounced rally, up $3.00 to $3.15, exemplified by August 25 contracts trading at $301.875. This bullish sentiment in the futures market, as indicated by a moderately positive overall signal, contrasts with subdued cash trade activity early in the week, following last week's prices of $221-223 in the South and $234-237 in the North. Supporting the feeder cattle strength, the CME Feeder Cattle Index rose $1.55 to $299.30 on May 29. New, wider trading limits of $7.25 for live cattle (previously $6.50) and $9.25 for feeder cattle (previously $8.25) have been instituted, potentially accommodating greater price swings. Despite the rally, the Commitment of Traders report revealed a slight pullback in speculative bullishness; spec traders in live cattle futures and options reduced their net long position by 1,271 contracts to 131,293 as of last Tuesday, and managed money in feeder cattle futures and options trimmed their net long by 714 contracts to 33,258 by May 27th. USDA's National Wholesale Boxed Beef prices presented a mixed picture in the Monday morning report: Choice boxes eased 20 cents to $366.14, while Select boxes firmed 80 cents to $357.45, resulting in an $8.69 Choice/Select spread. Significantly, federally inspected cattle slaughter for the prior week was 477,000 head, down 61,910 head year-over-year for the comparable holiday week, suggesting tighter cattle availability which could be supportive of prices.

Key Decisions for Investors

• Given the current rally in futures, particularly for feeder cattle, juxtaposed with a slight reduction in speculative net long positions, investors might interpret the market as having underlying strength, but should monitor upcoming cash market transactions and volume to confirm broader participation in the uptrend.
• The implementation of wider daily trading limits ($7.25 for live cattle, $9.25 for feeders) suggests potential for increased price volatility; therefore, it may be prudent to review and adjust risk management parameters, such as stop-loss orders or position sizing.
• Investors should closely track subsequent USDA reports on boxed beef prices and slaughter numbers, as the recent significant year-over-year decline in slaughter points to potentially tighter supplies, which, if sustained, could further support cattle prices, while mixed boxed beef prices warrant attention for demand signals.