CME Cattle Futures: Navigating Supply Dynamics Post-Screwworm Import Resumption

The U.S. cattle market is at a pivotal juncture. After years of supply constraints fueled by herd shrinkage and periodic border closures due to the New World Screwworm (NWS), the USDA's phased reopening of Mexican livestock imports—beginning July 7, 2025—presents a contrarian opportunity in CME cattle futures. While the market may anticipate overcorrection in prices due to normalized supply, a deeper analysis reveals that feeder cattle futures are undervalued, offering a strategic entry point before broader recognition of rebalancing supply-demand dynamics.

Phased Reopening: A Gradual Fix, Not an Overcorrection

The USDA's staggered port reopenings (Douglas, AZ, first, followed by Columbus, NM, Santa Teresa, NM, Del Rio, TX, and Laredo, TX through September) are designed to mitigate NWS risks while incrementally restoring Mexican cattle imports. Key protocols—such as requiring cattle to originate from NWS-safe zones (Sonora/Chihuahua) or undergo rigorous treatment—ensure only low-risk livestock enter the U.S. This cautious approach means supply normalization will be gradual, not sudden.

Current feeder cattle futures prices (e.g., December 2025 contracts) reflect market anxiety over past shortages, but they underestimate the impact of resuming imports. With Mexican feeder cattle imports down 60% year-to-date due to NWS suspensions, U.S. feedlots have faced extreme competition for scarce domestic supplies. The reopening is expected to alleviate this tension, potentially stabilizing prices rather than triggering a sharp drop.

Data-Driven Contrarian Signal: Feeder Cattle as the Undervalued Play

The USDA's May 2025 Cattle on Feed report reveals a 1.5% annual decline in feeder cattle placements, with total on-feed numbers at 11.4 million head—the lowest since 1951. This tightness has kept live cattle futures (e.g., August 2025) near 2024 highs, despite rising beef production (up 0.8% year-to-date due to heavier carcass weights).

Feeder cattle, however, face a different dynamic. Their futures prices have lagged behind live cattle due to speculative short positions and fears of overcorrection. Yet, three factors suggest this is a contrarian buying opportunity:

1. Supply Cushion from Mexico: The phased reopening targets feeder cattle first, as protocols for slaughter cattle are stricter. Even partial imports could add 100,000–200,000 head by late 2025, easing feedlot bottlenecks.
2. Seasonal Hog Market Cycle: Pork prices, a beef substitute, face pressure from narrowing hog-pork index spreads and packer caution. This reduces downward price pressure on beef, supporting feeder cattle demand.
3. Price Stabilization: USDA data shows beef prices have plateaued since March 2025, with retail cuts up just 1.2% year-over-year. This stability suggests the market is near equilibrium—ideal for a short squeeze in feeder contracts.

Strategic Entry: Feeder Cattle Futures as the Rebalancing Catalyst

The best contrarian play is buying feeder cattle futures while shorting live cattle contracts to exploit the narrowing spread. For example, the December 2025 feeder cattle futures (currently $155/cwt) versus live cattle futures ($180/cwt) offer a spread of 14%, historically tight.

Risks and Mitigation

• NWS Resurgence: If the pest spreads beyond Mexico's Darién Gap barrier (dependent on sterile fly production ramp-up), imports could stall. Monitor USDA's weekly NWS reports.
• Logistical Bottlenecks: Ports like Del Rio and Laredo may face delays due to equine quarantine requirements and new sterile fly facilities' timelines.

Investment Advice

• Buy Feeder Cattle Futures: Target December 2025 contracts at $155/cwt, aiming for $170–$180 by year-end as supply eases.
• Short Live Cattle Futures: Capitalize on the narrowing spread, exiting if the live/feeder ratio falls below 12%.
• Consider Equity Plays: Logistics firms like CHRW (up 12% since protocols resumed) and processors like Tyson Foods (TSN) benefit from stable supply chains.

Conclusion

The U.S. cattle market is on the cusp of a supply normalization phase, but futures prices have yet to fully reflect this. Feeder cattle futures offer a contrarian bet on rebalancing, with upside potential as Mexican imports stabilize feedlots and seasonal cycles ease pressure. Act before the market catches up—this could be one of the last opportunities to buy undervalued livestock exposure before broader recognition drives prices higher.