CME Cattle Futures Surge as US-Mexico Trade Disruptions Fuel a Structural Shortage

The CME live cattle futures contract has hit contract highs, with prices pushing toward the $222.50 resistance level amid escalating supply constraints. The U.S.-Mexico livestock trade disruptions, driven by a resurgence of New World Screwworm (NWS), have exacerbated an already fragile U.S. cattle supply, creating a compelling bullish case for futures traders. With demand robust and technical momentum building, now may be an opportune time to position for further gains.

Supply Constraints: A Perfect Storm of Trade Disruptions and Herd Declines

The latest suspension of U.S.-Mexico livestock trade on July 9—prompted by a new NWS detection 370 miles south of the border—has reignited fears of prolonged supply shortages. This marks the second major border closure this year, following a May 11 suspension after earlier NWS outbreaks in Oaxaca and Veracruz. While the U.S. had planned a phased reopening of ports starting July 7, the new case has forced an indefinite pause.

The implications are stark: Mexico supplies over 1 million head of cattle annually to the U.S., but May imports plummeted 76% year-over-year to just 31,969 head. Analysts estimate 2025 imports could fall short of 2024 levels by 500,000 to 900,000 head. Compounding this, the U.S. cattle herd has shrunk to a 74-year low of 86.7 million head, driven by drought, rising feed costs, and a declining calf crop. With biological lags of two years required for herd expansion, structural shortages are expected to persist through 2026.

The USDA's aggressive response—building new sterile fly dispersal facilities in Texas and Mexico to combat NWS—highlights the severity of the threat. Yet, the recent NWS detection's proximity to the border underscores lingering risks of further trade disruptions, keeping pressure on U.S. supplies.

Technical Momentum: Eyes on $222.50 Resistance

CME live cattle futures have rallied 18% year-to-date, with prices nearing the $222.50 resistance level—a key technical barrier. A sustained breach here could unlock upside toward $240, as seen in the 2022 cycle.

Support for this move comes from strong cash cattle prices, which hit a record $2.15/lb in Q2. Meanwhile, beef demand remains resilient, with domestic consumption holding steady despite rising retail prices. Export markets, particularly China and Japan, are also bidding up prices as global beef production contracts due to droughts in Brazil and New Zealand.

Investment Strategy: Going Long with Feed Coverage

The risk-reward setup for long positions in CME cattle futures is compelling. Key recommendations include:

1. Target Entry Points: Initiate long positions at current levels, with a stop-loss below the $200 support zone. A breakout above $222.50 could trigger a sharp climb.
2. Hedge Input Costs: Pair cattle futures with a short position in corn futures (e.g., CME Corn Futures [CN]) to mitigate feed cost risks. Corn's recent dip to $4.80/bushel provides a favorable margin backdrop.
3. Time Horizon: Position for a multi-quarter bullish trend, given the herd's structural deficit and potential delays in resolving trade barriers.

Risks and Considerations

• NWS Containment: A rapid resolution of the NWS outbreak could ease trade restrictions, tempering prices. Monitor USDA site visits and Mexico's progress in sterile fly production.
• Geopolitical Risks: Ongoing U.S.-Mexico trade tensions, including potential tariffs on Mexican beef, add uncertainty.
• Demand Pullback: A sharp economic slowdown could reduce beef consumption, though current data shows resilience.

Conclusion: A Bull Market Anchored in Scarcity

The CME cattle market is riding twin engines of supply destruction and technical momentum. With the U.S. herd at historic lows, trade disruptions lingering, and demand robust, the case for a sustained bull market is strong. Traders who establish long positions now, while hedging feed costs, may capture significant upside as the market tests resistance levels. The clock is ticking—act before the window closes.