By Trey Freeman, Ever.Ag

Managed money in live cattle was reported on Friday to have lightened up net-long positions by 21,045 contracts to 58,248 contracts as of Tuesday last week. Open interest declined by 17,442 contracts. These two statistics reveal that the heavy losses incurred in live cattle futures were largely a function of money flow out of the futures market, which was sparked by three days of heavy selling in the stock market amid concerns of a slowing economy and recession fears.

This recent selloff marks the third time in less than a year that live and feeder cattle futures have sustained such heavy losses. The chart below shows how abruptly managed money tends to bail on net long positions in live cattle futures over the last 12 months, and how slow they are to build it back up. This trend suggests that managed money is cautiously optimistic about cattle futures, but when concerns arise, they reveal just how cautious they are at still historically high prices.

Unfortunately, managed money carries a lot of weight in live cattle futures. This leaves the trade wondering how managed money will change its investment in cattle futures by year end. With the first interest rate cut expected to occur in September, the stock market still near all-time highs, and a presidential election in November, there are plenty of impacts on the greater economy through the remainder of the year. This seems likely to deter funds from building onto their net long position to much of a degree as cattle markets are closely tied to financial markets. 

Live cattle futures closed 35 cents to $1.125/cwt. lower on Monday, with the greatest losses in nearby contracts. Feeder cattle futures settled $1.50 to $2.10/cwt. lower, also with the greatest losses in nearby contracts.

Negotiated fed cattle markets are expected to trade steady in the South and slightly lower in the North this week as the seasonal spread continues to narrow between the two. Last week, trade in the South was $1.00-2.00/cwt. lower at $186.00-187.00/cwt., and $3.00 lower in the North at $193.00. Dressed sales were $5.00/cwt. lower at $305.00. Boxed beef is expected to hold firm, with Labor Day only three weeks out, amid a still-slow slaughter rate. Last week’s slaughter amounted to 591,000 head, down 2,000 from the previous week and -13,000 from a year ago. This week’s rate is expected to fall below 600,000 contracts again. 

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 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.