Higher boxed-beef prices have offered some relief for packer margins, but with packers still operating in the red as prices start to decline seasonally, how much longer will they pay up for cattle?

By Trey Freeman, Commodity Futures Broker/Livestock Agent, Ever.Ag

Higher boxed-beef prices have offered some relief for packer margins. The average weekly price of choice cutout has posted gains for five consecutive weeks, coming in at $316.05 per hundredweight last week. But with packers still operating in the red as prices start to decline seasonally, how much longer will they pay up for cattle?

Based on relatively light trade volume over the last couple of weeks, packers appear short bought coming into the week, leaving cattle feeders with the leverage. Monday brought triple-digit gains across the board, sparked by some late-afternoon trade at $193 in the North on Friday. However, live cattle futures were absent of follow-through buying through mid-week.

The sluggish performance following Monday’s excitement is the market waiting for this week’s cash to develop, although there was some small trade in Kansas at $185, par with last week. The June contract remains at a sizeable discount to cash as of Wednesday’s close, settling at $183.65 per hundredweight versus last week’s 5-Area Fed Steer price of $188.92. The steep discount will deter any deliveries in June.

Upside potential in the remaining live cattle contracts will likely be capped by last month’s highs. In the August contract, price peaked at $182.15 per hundredweight on May 23. Once June rolls off the board, August seasonally tends to carve out a low as it becomes the new spot contract, advancing through July.

Market participation in live cattle futures remains lackluster, as open interest lags well below year-ago levels, declining over 9,000 contracts for the week ending June 7. The CFTC Commitment of Traders report released last week showed managed money lightening its net-long position by over 5,000 contracts to 56,642, compared to a net-long position of 112,803 a year ago.

The CME Feeder Index printed $253.39 per hundredweight for the seven-day average ending June 10, approaching the record high of $254.10 set in September 2023. August feeder futures seasonally tend to move higher over the next two months. Key resistance for August feeders stands at the psychological $260 level, then at the May high of $264.95. Support below the market sits at this week’s open of $255.50.

The risk of loss trading commodity futures and options can be substantial. Investors should carefully consider the inherent risks in light of their financial condition. The information contained herein has been obtained from sources deemed to be reliable, however, no independent verification has been made. The information contained herein is strictly the opinion of its author and not necessarily of Ever.Ag and is intended to be a solicitation. Past performance is not indicative of future results.