In my January 2, 2025, Barchart article on the price action in the animal protein sector, I highlighted the 13.71% rally in live cattle futures in 2024 and last year’s 18.32% price increase in the feeder cattle futures. I concluded the quarterly meat report with the following:
The trend is always your best friend in markets, and it has been bullish in live and feeder cattle and lean hog futures since the April 2020 lows. As the animal protein markets move into 2025, prices remain on a bullish path. The peak grilling season begins in May and runs through September when the demand increases, and prices often reach seasonal highs. However, the potential for U.S. tariffs in 2025 could cause the most volatility in beef and pork prices.
The continuous live cattle futures settled 2024 at $1.9160 per pound, with the feeders at $2.6305 per pound. Prices were higher in January 2025.
Live cattle continue to post gains- The first WASDE of 2025 was bullish
The quarterly chart of CME live cattle futures displays an impressive bullish trend since the 2020 pandemic-inspired low.
Live cattle futures continued their bullish path of least resistance in early 2025, reaching a new record high of $1.9910 per pound in January 2025.
The latest USDA January World Agricultural Supply and Demand Estimates Report validated the higher prices. The USDA increased the beef forecasts for 2025, stating:
The beef forecast is raised on an increase in steer and heifer slaughter due to higher placements expected during the fourth quarter of 2024, as well as higher dressed weights. For 2025, cattle prices are raised on recent prices and continued strong demand for cattle and beef.
Feeders remain on a bullish path
Feeder cattle prices have followed the same bullish path.
The quarterly chart highlights the rise to a record high of $2.71 per pound in January 2025.
The 2025 grilling season is only months away
The beef markets are around four months away from the start of the 2025 grilling season, when cattle prices tend to rise to seasonal highs. Beef demand rises when grills come out of storage during late spring and summer, with the grilling season running from late May through early September.
Meanwhile, beef prices have remained strong throughout the off-season for demand from October 2024 through January 2025, reaching new record peaks.
The bullish versus the bearish case for cattle
The most bullish factor for beef prices encouraging higher highs is that managed money holds a heft net long position. Open interest, the total number of open long and short positions in the live cattle futures market, has increased from 268,017 contracts in late 2023 to over 373,600 in January 2025. Open interest in the feeder cattle futures market has grown from below 50,000 contracts in late 2023 to nearly 80,500 in January 2025. Increasing open interest when prices rise tends to validate a futures market’s bullish trend.
Meanwhile, tariffs and other trade barriers could cause volatility in the cattle futures arena. They can distort prices, causing gluts in some countries dependent on exports and shortages in others that rely on imports for supplies.
Meanwhile, the high open interest level could create a significant decline if market participants holding long risk positions decide to liquidate risk positions to take profits when prices run out of upside steam. Moreover, commodity cyclicality suggests that prices rise to levels where production increases, inventories rise, and consumers limit purchases, leading to price peaks and downside corrections.
The bottom line is that cattle futures could become volatile over the coming weeks and months. In early 2025, the cattle trend remains bullish and is the market’s best friend.
Futures are the only way to participate- No ETF or ETN products
The only way to participate in the cattle bull market is through the CME futures and futures options contracts. No ETF or ETN products have tracked cattle prices since the COW ETN ceased trading in June 2023.
Each live cattle futures contract contains 40,000 pounds of beef, at nearly $2 per pound, the contract value is $80,000. The original and maintenance margin levels are $2,420/$2,200 per contract. A market participant can control $80,000 worth of beef with a 3.025% downpayment. When equity drops below the $2,200 level, margin calls occur.
Every feeder cattle contract contains 50,000 pounds of beef. At around $2.70 per pound, the contract value is $135,000. Original and maintenance margin levels are $4,537/$4,125 per contract. A market participant can control $80,000 worth of beef with a 3.36% downpayment. When equity drops below the $4,125 level, margin calls occur.
The trend in cattle remains bullish in early 2025, with the peak demand season coming closer each week. However, the higher prices rise, the greater the odds that commodity cyclicality will create an environment where prices reach peaks. It is virtually impossible to pick tops or bottoms in any market, and the volatile cattle markets are no exception. Prices can rise or fall to levels that defy logical, reasonable, and rational fundamental and technical analysis. Therefore, approach the cattle futures with extreme caution at current, high prices.
