CME Livestock Daily Options Report
Recap of day's options activity and data.
PJ Quaid
- Meats & Livestock
CME Livestock Daily Options Report
By: PJ Quaid, Senior VP, Agricultural Commodities
The Wednesday morning pork report leaned modestly negative, with the **USDA pork carcass cutout down 44 cents to $100.15/cwt** as weakness in the **loin, rib, and belly primals** offset support elsewhere. The bigger contrast versus beef remains supply: federally inspected hog slaughter was estimated at **487,000 head Tuesday**, bringing the week-to-date total to **984,000 head**, up more than **17,000 head from last year**. That heavier kill pace adds product availability at a time when the cutout is struggling to extend higher, suggesting the pork complex may need stronger retail, export, or belly demand to maintain upside momentum. Net-net, pork fundamentals look more mixed than cattle, with cutout values still holding near the $100 level but facing more supply pressure.
Boxed beef values remain historically strong, but Tuesday’s afternoon report showed a mixed tone underneath the headline strength. **Choice cutout gained $1.94 to $396.01**, while **Select slipped 39 cents to $384.42**, widening the **Choice/Select spread to $11.59** and signaling that higher-quality beef demand continues to hold a premium. At the same time, federally inspected cattle slaughter remains constrained, with Tuesday’s kill estimated at **110,000 head** and the week-to-date total at **214,000 head**, down more than **24,000 head from last year**. The combination of tight slaughter, elevated cutout values, and a firm Choice premium keeps the cattle complex fundamentally supported, even as high wholesale beef prices raise the risk of demand resistance if retailers and consumers begin to push back.
The latest Fed Beige Book points to an economy that is still expanding, but only at a slight to moderate pace, while the labor market remains largely steady with little change in employment. The bigger concern is inflation, which reportedly picked up across most Fed districts, driven mainly by higher energy costs tied to the Middle East conflict. Those higher energy costs are spilling into transportation, packaging, groceries, and fertilizer, keeping cost pressure broad-based. Overall, the report supports the view that growth is holding up, but inflation risks remain elevated, making it harder for the Fed to move quickly toward easing policy.
An unconfirmed U.S. screwworm case is creating fresh anxiety in cattle markets, as traders worry that any confirmed domestic outbreak could disrupt livestock movement, raise animal-health costs, and further tighten an already historically tight cattle supply situation. The key point is that the case has not yet been confirmed, but the headline alone is enough to inject risk premium into cattle futures because screwworm can spread quickly through wounds in warm-blooded animals and would likely trigger aggressive USDA surveillance, quarantine, and eradication efforts. For cattle producers and packers, the market concern is less about today’s confirmed supply impact and more about the potential for movement restrictions, border/trade disruptions, and added stress on a cattle herd that is already near multi-decade lows.
Lula is using China’s decision to clear Brazilian beef of foot-and-mouth disease restrictions as a political and trade win, while sharply criticizing the U.S. after Washington announced new tariffs on Brazilian goods. His message was that Brazil will redirect sales elsewhere if the U.S. raises barriers, saying, “I will sell to someone else.” The move strengthens Brazil’s access to China’s beef market, supports its export leverage, and adds another layer of tension to U.S.-Brazil trade relations, especially in agriculture and protein markets.
U.S. ethanol data was mixed but generally supportive on stocks: ethanol inventories fell 1.4% on the week to 24.606 million barrels, well below the Bloomberg survey average of 25.202 million, with the sharpest draw on the East Coast, where stocks dropped 5.3%. Total stocks are still slightly above last year, up 0.7%, but the draw was larger than expected. Production improved to 1.108 million barrels per day, up 1.7% from the prior week, though slightly below expectations of 1.117 mbpd. Midwest production, the key corn-ethanol region, rose to 1.047 mbpd, while blender inputs fell 4.1% to 899,000 bpd, suggesting demand was softer on the week despite stronger plant output. Overall, the report leans constructive for ethanol margins and corn demand because stocks tightened more than expected while production remained strong.
The Federal Reserve is facing internal pushback over Governor Christopher Waller’s proposal to centralize certain back-office functions across the 12 regional Fed banks, including areas such as human resources and technology. While the plan is being framed as an effort to improve efficiency and reduce duplication, regional Fed officials are concerned it could erode their autonomy and shift more authority toward Washington. The issue comes as new Fed Chair Kevin Warsh is expected to pursue broader institutional reforms, making this another sign that the Fed’s governance structure may be entering a period of meaningful change.
The May ISM Services report came in stronger than expected, with the headline PMI rising to 54.5 from 53.6 in April versus expectations near 53.8–53.9, signaling continued expansion in the services economy. The strength was led by improved demand, as new orders rose to 57.3 from 53.5, while business activity improved to 57.7 from 55.9. However, inflation pressures remained a concern, with the prices index rising to 71.3 from 70.7, while employment stayed soft at 47.9, slightly below April’s 48.0. Overall, the report points to firmer services growth but sticky price pressure and weak hiring, a mix that is supportive for economic activity but less favorable for near-term Fed rate-cut expectations.
Hog
Bought 200 Aug 83 puts paid @ .40
Bought 125 July 102 straddle paid 5.30
Bought 1000 Aug 88 puts paid .7250 up to .85
Sold 600 Aug 105 calls @ 2.1250 down to 1.975
Sold 1300 Aug 102 calls @ 3.05 down to 2.925
Sold 300 Dec 80 puts @ 6.575 down to 6.45
Bought 100 Aug 95/90 put spread v. 102 calls paid 1.40
Live Cattle
Bought 400 Oct 220 puts paid 4.6250 up to 4.6750
Sold 150 Aug 246/236/224 skinny fly @ 7.125 down to 7.0
Bought 400 June 248/249 call spread paid .125 up to .15
Bought 150 Aug 238/222 put spreads v.262 calls paid 4.5 up to 5.00
Bought 1000 June 245 puts calls paid 1.15 up to 1.50
Sold 300 Oct 226/212 puts spread @ 4.20 down to 4.125
Bought 600 June 247/249 call spread paid .30 up to .35
Sold 500 June 250 calls @ .20 down to .1750
Sold 200 June 251 calls @ .20 down to .15
Sold 150 June 248 call/245p 2x1 @ 1.725 down to 1.70
Feeder Cattle
Sold 100 Oct 300 puts @ 4.225 down to 4.20
Bought 300 Aug 320 puts paid 2.925 up to 3.1750
Bought 100 Aug 376/370 put spread paid 5.025 up to 5.075
- Meats & Livestock
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