U.S. live cattle futures bounded higher on Tuesday as unexpectedly strong wholesale beef prices triggered active short-covering, said analysts and traders.
The U.S. Department of Agriculture showed the wholesale price for choice beef on Tuesday at $196.17 per hundredweight (cwt), up $2.12 from Monday, and the select price was $174.67, up $1.74 (all figures US$).
Fund buying was activated as the Chicago Mercantile Exchange December live cattle surpassed the 40- and 20-day moving averages of 126.47 cents and 126.82 cents.
February futures attracted fund buying after they blew through the key 100-day moving average of 130.81 cents.
Spot December cattle closed up 0.95 cent per pound, or 0.76 per cent, at 126.55 cents. Most-actively traded February ended 1.675 cents higher, or 1.29 per cent, at 131.95 cents.
Cattle were lower early due to lower cash cattle price expectations and 112 deliveries posted on Monday against the CME December.
"Regardless of the reason for today’s rally, the industry is now dealing with a major dysfunctional market. Cash is moving one direction and the futures in the other," said David Hales, president of Hales Cattle Trading Co.
The gains in futures may encourage sellers in the cash market to hold out for more money this week. However, ample cattle supplies this week may give beef packers leverage to pay lower prices and improve margins.
So far this week, no cash bids or asking prices were reported.
Packers last week paid $124 per cwt for cattle in Kansas and Nebraska, down $1 from the week before. Live-basis cattle in Texas also brought $124, compared with $126 to $128 the previous week.
HedgersEdge.com put the average beef packer margin for Tuesday at a negative $50 per head, compared with a negative $69.45 on Monday and a negative $67.55 for Dec. 4.
CME feeder cattle was lifted by the higher live cattle market, short-covering and a weak corn market. Corn was pressured by lower wheat prices.
January feeder cattle closed up 2.3 cents per pound, or 1.54 per cent, at 152.075 cents. March rose 2.175
cents, or 1.43 per cent, at 154.375 cents.
Hogs rise with cattle
Aside from December hog futures, other hog contracts rose in tandem with the live cattle market, said traders and analysts.
December hog futures were pressured by lower cash hog prices, which significantly helped improve packer margins, a trader said. The contract is set to expire on Friday.
USDA’s Tuesday market data showed the average price for hogs in the most-watched Iowa/Minnesota direct market at $77.93 cents/cwt, down $1.40 from Monday and down $7.72 from a week earlier.
The average pork packer margin for Tuesday was estimated at a positive $2.90 per head, compared with a negative 90 cents per head on Monday and a negative $1.80 for Dec. 4, according to HedgersEdge.com.
Processors balked at raising cash bids due to sluggish wholesale pork demand and ample supplies, the trader said.
In the futures, spreaders bought deferred contracts in anticipation of tighter hog supplies next year after the historic drought last summer forced producers to cull herds.
Spot December hog futures settled at 82.1 cents per pound, down 0.05 cent, or 0.06 per cent.
Most-actively traded February finished at 84.15 cents, up 0.225 cent, or 0.27 per cent. April hogs closed at 89.45 cents, up 0.5 cent, or 0.56 per cent.
— Theopolis Waters writes for Reuters from Chicago.