Tighter grain supplies could spark a rally. Will cattle prices hold up?

By Mike Zuzolo, Global Commodity Analytics & Consulting LLC

As I write this month’s post, the commodity trade has correctly refocused its attention on supply-related disruptions for WTI crude and wheat, thanks to geopolitical hostilities in the Middle East and Baltic regions that are directly impacting both commodities.

USDA’s July WASDE report tightened U.S. wheat production to a generational low and reduced 2026-27 U.S. corn carryover to below 1.9 billion bushels.

Supply concerns are not limited to the United States. France is experiencing a weather-related corn crop situation similar to what U.S. farmers faced in 2012, pushing French corn futures toward $7 per bushel as of this writing.

While I have been more price-negative on the soybean complex, the relationship between soy oil and renewable diesel continues to provide price support. USDA also increased its forecast for 2026-27 soybean exports by 30 million bushels.

It is becoming clearer to the trade that (1) supplies are falling and (2) demand has not been rationed.

Add in weather concerns in Europe, reduced crude oil shipments through the Strait of Hormuz and reduced Russian wheat exports moving through the Kerch Strait, and it becomes easier to understand why fund managers holding short positions in grain and soybean markets may be increasingly uncomfortable.

There is also the possibility that adverse U.S. weather could further reduce crop production as we move through July.

To me, this creates an important window for farmers to revisit their marketing plans and prepare for the possibility of a counter-seasonal rally heading into August. That is my strategy at this point.

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As I have been suggesting to my clients and subscribers for some time, I think we have a different set of fundamentals driving prices than what we experienced during the previous two years, when corn and soybean prices dropped into early to mid-August.

Between the seasonality and cycle dynamics, I see this next 30 days as a critical time for cattle and feeders to resume supporting each other’s prices. Drought/heat-related losses and tightening supplies for both cattle and hogs heading into Q4 are key factors.

In general, I view commodities much like I view history: every year is different, but some years “rhyme” with those that came before. That is one reason I continue to use price cycle analysis in my recommendations to clients and subscribers in the livestock sector.

Several of the longer-term cycles I follow, combined with growing concerns about a global recession or a correction in equity markets that could reduce red meat demand heading into the fourth quarter, make me cautious about further losses in nearby cattle futures. In my view, the cattle rally has already “lost a gear” since the June contract expired.

More specifically, I would not want to see a weekly close in nearby live cattle futures below the March low of $227.32. If that happens, I would begin recommending hedging strategies, with the possibility that the November 2025 low of $204.55 could become the next support level tested.

Would that signal a market top? Not necessarily. Live cattle could fall to the $200 per hundredweight level and still remain within the long-term uptrend that began with the 2020 lows.

Instead, I would prefer to see shrinking cattle and hog herds continue supporting prices. Additional support could come from lighter animal weights, especially if hot weather persists across feedlot country. Those factors could help underpin livestock prices during the next 30 days.

Disclaimer: There is significant risk of loss in trading futures & options on futures, and may not be suitable for all investors. Investors should consider the risks involved and evaluate their suitability based upon their financial conditions. Past performance is not indicative of future results.

Mike Zuzolo has been a licensed Series 3 broker & analyst in commodities since 1995 and is the founder of Global Commodity Analytics & Consulting LLC. A native of Preble County OH, Mike and his family have lived in NE Kansas since 2013. Sign-up for a four-week free trial of Mike’s analysis www.globalcommresearch.com.