To say that the cattle market has been the talk of the town is a gross understatement. Every trader in the country is taking note and paying attention to not only beef, but cattle prices as well.
Managed money has been holding a near-record to record long position in both live and feeder cattle since the fall of 2024. As we prepare for USDA’s Friday afternoon release of some major cattle data, I believe it's essential to look at what's expected in those reports, as well as where we have been and where we are now.
- Average trade estimates are looking for Cattle on Feed to be at 99.1% of year-ago levels.
- Total cattle and calf inventory is expected to be 98.1% of two years ago.
Considering the slim numbers we have been hearing about for quite some time now, these expectations seem fairly optimistic. Perhaps this has been contributing to the recent spike in the futures market as traders brace for the barrage of information.
The cattle market has been in a long-term uptrend since making a low during COVID in the spring of 2020. To see any ag market sustain a rally for duration is – like so many things we saw during COVID – unprecedented. Why this occurred is not a secret but let's review:
- U.S. consumers were stockpiling anything they could during the onset of COVID, including the famed toilet paper shortage of 2020. Beef was another item that was flying off of shelves and into home deep freezes. This spiked demand, particularly for hamburger and the cull cow market went through the roof almost immediately.
- Extreme drought in the Western U.S. and herd liquidation simultaneously began to accelerate. As time progressed, numbers drew tighter and tighter, and packers had no choice but to bid up to get any market-ready supply.
- Not even the occasional black swan has set the cattle back. And that’s probably the biggest surprise. Plant closures, Avian flu, stock market tumbles and even New World screwworm have all just slid past the market and the march higher continues.
Will high beef prices kill demand?
We know this won't remain the case forever and eventually the market will fall. The question is: What will be the trigger?
Industry concern right now is on whether high-priced beef will kill demand moving forward. Most recently we saw wholesale boxed beef begin to slide lower while cattle remain elevated. This won't continue forever as packers always seem to figure out a workaround and they already are cutting back kill.
Both fed and feeder cattle cash trade are at record highs while the futures market is trading at contract highs across the board. Pasture conditions remain really good for the bulk of the country and heifer retention is just getting started. The Mexican border remains closed due to New World screwworm. As more heifers get held back for breeding, the numbers will tighten even further.
Too many dollars are at risk to think that you can continue to "bet on the come" and everything will work out. While the fundamentals suggest potential for continued strength, history shows that turning points often come when the market appears most robust. With high prices and increasing risk exposure, market participants are advised to consider protective strategies to guard against potential downturns.
Futures trading involves risk. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that CommStock Investments believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.