Chicago Mercantile Exchange (CME) live cattle futures turned lower on Tuesday as the threat of meat inspector furloughs, which could shut beef plants, contributed to profit taking, analysts and traders said.
The U.S. Department of Agriculture is expected to send furlough notices to meat inspectors this week, but it will be several months before they would go into effect, Agriculture Secretary Tom Vilsack told lawmakers on Tuesday.
How the furloughs would ultimately play out put some CME live cattle futures investors on the defensive.
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"The thing that I find the most distressing in this environment is how do you analyze reactions to political theatre? You run for the hills," said Linn Group analyst John Ginzel.
After an erratic day of trading, CME live cattle futures finished in negative territory. The losses conflicted with recent strong cash cattle and wholesale beef prices. Cash cattle and beef prices were supported by the snow in the U.S. Plains that disrupted livestock production.
"Today’s break in the cattle futures market may be more about the loss of bullish enthusiasm than the story about meat inspectors," said David Hales, president of Hales Trading Co.
No longer are traders anticipating the coming cattle shortage as they had before but are focused on beef demand, competition from other meat proteins and various other bearish factors, he said.
Investors await the sale of cattle in the cash market. Last week cattle traded at $127 to $128 per hundredweight (cwt), up $3 to $5 from the week before (all figures US$).
No cash bids or asking prices for slaughter-ready cattle have been reported by feedlot sources so far this week.
USDA data showed wholesale choice beef on Tuesday at $193.87/cwt, up $2.91 from Monday; select cuts were up $3.44, to $191.52.
April live cattle closed at 129.625 cents/lb., down 0.725 cent. June dropped 1.075 cents, to 124.475 cents.
CME feeder cattle followed live cattle lower. They were also pressured by higher corn prices that could raise input costs for feedlot operators.
March feeders settled 0.775 cent/lb. lower at 141.75 cents. April ended at 143.6 cents, down 1.125 cents.
Hogs hit four-month low
CME hogs sank to a four-month low saddled by their premiums to the exchange’s lean hog index, which was at 78.45 cents, traders and analysts said.
April hogs ended at 79.25 cents/lb., down 1.05 cents, while June hogs fell 1.025 cents to 89.55 cents.
A seasonal increase in hog supplies at a time of waning demand for pork prompted more selling, he said.
On Monday and Tuesday packers processed a combined total of 854,000 hogs, up 29,000 from a week earlier and 13,000 more than for the same period a year ago, according to USDA.
Separate government data showed the wholesale price for pork on Tuesday averaged $79.88/cwt, $1.79 lower than Monday.
Don Roose, an analyst with U.S. Commodities, said: "We’re going to need the domestic demand to support us because the export market seems like it’s in retreat or at least cautious."
Since March 1 China is requiring third-party verification that pork it imports from the United States is free of the feed additive ractopamine, which is used to promote lean growth.
On Feb. 11, Russia banned imports of U.S. beef, pork and turkey in a dispute over the feed additive.
— Theopolis Waters writes for Reuters from Chicago.
