February live cattle futures (LEG25) last week closed at $198.775, reaching the highest level since September of 2023 and a record high, basis nearby futures. On the week, February live cattle futures gained a solid $4.725. 

Meantime, feeder cattle futures Friday also scored a record closing high of $272.35, basis the nearby contract. Cash cattle prices last week traded as much as $4.00 to $5.00 higher as beef packers continued to bid up for supplies despite negative cutting margins. USDA reported 19,071 steers changing hands for an average price of $202.80 last Thursday. The cash cattle market last week will post an all-time high for a second straight week. Meantime, wholesale boxed beef values continue to rise, with Choice grade last Friday gaining $2.06 to $332.84, while Select grade jumped $5.79 to $314.14. 

While the bull market runs in the cattle futures markets are very mature there are no solid fundamental signs the cattle markets’ prices are near major tops or will start to trend significantly down any time soon. 

Cattle, beef market fundamentals will continue to keep a floor under cash and futures prices

Following are several factors that will continue to support buyer interest in the cattle futures markets:

• The price discount February live cattle futures hold to the cash market at present will continue to limit speculator selling interest in cattle futures for at least the near term. 
• The Choice-Select beef grades price spread at present remains seasonally narrow at $18.70 as of last Friday, suggesting still-tight supplies of market-ready cattle in feedlots. The late-December monthly USDA cattle-on-feed report also showed declining supplies of fed cattle. The agency reported cattle and calves on feed in feedlots of 1,000 or more head totaled 12.0 million on December 1. That was slightly below December 1, 2023. Placements during November totaled 1.80 million head, down 4 percent from the same time in 2023. Marketings of fed cattle during November totaled 1.73 million head, 1 percent below that seen one year earlier.
• Last Friday’s USDA supply and demand report showed the agency raise its 2025 U.S. beef production forecast due in part to higher dressed weights. USDA’s cattle report that is released January 31 will provide an additional indication of the supply of cattle in 2025 as well as producer intentions for retaining heifers for the breeding herd. “For 2025, cattle prices are raised on recent prices and continued strong demand for cattle and beef,” said USDA in the report.
• The discovery of New World Screwworm (NWS) in cattle in the Mexican state of Chiapas resulted in a ban on the importation of cattle from Mexico into the U.S. That’s been a bullish element for the feeder cattle market in recent weeks. However, reports say the ban may soon be lifted by the U.S.
• From a macro-economic perspective, the U.S. economy continues to surprise analysts with its strength and resiliency. Last Friday’s December U.S. employment report added a solid 256,000 non-farm jobs--well above market expectations and the most in nine months. A strong labor market implies better consumer confidence and more demand for beef at the meat counter in the coming months. The December USDA cold storage report showed U.S. consumer demand for beef remained robust through November. 

How to trade it

With live and feeder cattle futures prices at record highs, do expect to see some normal downside price corrections and profit-taking pressure from the speculators in the coming weeks. 

For those speculators looking to play the cattle futures markets, while there may indeed be more price upside in the coming weeks or months, volatility would likely be higher in such a scenario, both on the upside and downside. That could badly whipsaw a trader who is in the market. And it’s not a wise trading strategy to chase a market when it’s at a historical price extreme. 

Also, be wary of thinking about trading the short side of a market that is setting record highs. It’s a fool’s errand to try to pick tops in markets—especially ones that are at or near record highs. Remember, there is usually a good fundamental reason why a market has pushed to a record high. An examination of the cocoa futures market’s price action in 2024 illustrates how even a market hitting a new record high can still power much higher.  

A few early clues the cattle futures markets have put in major price tops and may be short-selling opportunities include: two trading sessions in a row of very strong price losses; a close on Friday that is at or near the price low for that week; a strong push in a market to a new for-the-move high and then prices quickly backing way off and closing near the session low--to suggest the bulls have become exhausted. In the cash cattle and fresh beef markets, a sharply lower average cash cattle price for the week, from the week prior, or a big drop in boxed-beef cutout values on the week, would be bearish clues those markets have topped out.