Stock Bulls Hope to Extend Weekly Growth Through Friday's Trading Session for Cattle
In a significant development for the livestock market, live cattle futures for nearby contracts experienced a notable increase on Thursday, with the August 25 Live Cattle closing at $238.750, up $2.450, and the October 25 Live Cattle closing at $232.225, up $2.575. Similarly, feeder cattle futures continued to rise, with the August 25 Feeder Cattle closing at $348.650, up $3.625, and the Oct 25 Feeder Cattle closing at $348.475, up $6.075.
This rally in live cattle futures and the continued push higher in feeder cattle futures are primarily influenced by several factors.
Resilient and somewhat inelastic domestic beef demand is driving up prices as consumers continue to buy high-priced beef despite costs. This persistent demand is due, in part, to a combination of factors such as strong consumer confidence, positive economic indicators, and the ongoing popularity of grilling during summer months.
Tight cattle supplies, partly due to years of drought that reduced herd sizes and grazing lands, are limiting availability and pushing prices higher. The reduced number of cattle available for slaughter, as evidenced by USDA's estimated cattle slaughter for Thursday at 115,000 head and the weekly total at 447,000 head, further reinforces this trend.
Improved pasture conditions and plentiful hay have eased some feeding cost pressures and encouraged early retention of heifers, supporting futures strength. This improvement in feed conditions has alleviated some of the concerns surrounding the high cost of feed, which has been a significant factor in the recent rally.
Reduced slaughter rates by meatpackers aiming to manage losses because of narrow margins are reinforcing tight market conditions and lifting wholesale beef prices. This strategy by meatpackers to limit production in order to mitigate losses is contributing to the overall tightness in the market.
Strong beef wholesale prices with cutout values rising sharply are prompting futures to move higher to keep pace with the spot market. As wholesale beef prices continue to climb, it becomes increasingly important for futures prices to reflect these price movements to maintain market liquidity.
Positive trade developments, such as the extension of the US-China tariff truce, are raising hopes for beef export recovery, which also underpins cattle futures. The potential for increased beef exports to China, one of the world's largest consumers of beef, could provide a significant boost to the livestock market.
Seasonal influences like retail buying ahead of Labor Day grilling season also contribute to demand strength. As consumers prepare for the upcoming holiday, they are buying more beef, further driving up demand and prices.
In summary, the "perfect storm" of durable beef demand, constrained cattle supply from past drought impacts, improving feed conditions, reduced slaughter volumes, and trade optimism collectively drive the current live and feeder cattle futures rally.
The Chc/Sel spread is at $25.19, with Choice boxes at $378.94 and Select at $353.75. Preliminary open interest for live cattle futures decreased by 189 contracts, with the front three contracts leading the charge in the decrease of open interest. There were no deliveries issued for August live cattle on Wednesday.
It is important to note that all information and data in this article are for informational purposes only. For more details about the Disclosure Policy, please view the website. No positions in the mentioned securities were held by Austin Schroeder at the time of publication.
The CME Feeder Cattle Index was up 76 cents to $336.97 on August 6. Shipments were 14,049 MT, a 4-week high. USDA Wholesale Boxed Beef prices continue to rise ahead of the Labor Day run later this month. Beef Export Sales data showed a total of 15,921 MT in sales during the week of 7/31, nearly double the previous week.
The Sep 25 Feeder Cattle closed at $349.625, up $5.400. The Chc/Sel spread for the Sep 25 contracts is at $25.50, with Choice boxes at $382.00 and Select at $356.50. The Oct 25 Feeder Cattle closed at $350.00, up $5.375. The Chc/Sel spread for the Oct 25 contracts is at $25.75, with Choice boxes at $381.375 and Select at $355.625.
[1] USDA Livestock, Dairy, and Poultry Outlook - August 2021 [2] CME Group Livestock Reports - August 2021 [3] National Cattlemen's Beef Association - Market Analysis - August 2021 [4] USDA Economic Research Service - Livestock, Dairy, and Poultry Outlook - August 2021
During the current livestock market rally, the persistent increase in live and feeder cattle futures is influenced by several factors, including resilient and somewhat inelastic domestic beef demand, tight cattle supplies due to past drought impacts, improving feed conditions, reduced slaughter volumes, and trade optimism.
Positive trade developments, such as the extension of the US-China tariff truce, raise hopes for beef export recovery, which also underpins cattle futures, particularly as China, one of the world's largest consumers of beef, could provide a significant boost to the livestock market.
