Chicago Mercantile Exchange (CME) live cattle futures sank on Wednesday to their lowest level in two months as prices for cattle in the cash market moved lower, analysts and traders said.
They said CME live cattle February and April broke through their respective psychological support levels of 130 and 134 cents, triggering fund liquidation.
Live cattle spot February closed at 128.525 cents per pound, 1.9 cents lower or down 1.46 per cent. April ended down 1.725 cents, or 1.28 percent lower, to 132.7 cents.
Cash cattle in the U.S. Plains traded at $124 to $125 per hundredweight (cwt), compared with $125 to $128 last week, said feedlot sources.
"People liquidated their long positions because futures were unable to justify the big premiums that they had to cash," Oak Investment Group president Joe Ocrant said.
Unprofitable margins and lukewarm wholesale beef demand forced packers to curb cash spending, he said.
HedgersEdge.com put the average beef packer margin for Wednesday at a negative $46.90 per head, compared with a negative $45.85 on Tuesday and a negative $67.10 on Jan. 9.
The price for wholesale choice beef Wednesday morning was $193.78/cwt, up 32 cents from Tuesday, according to the U.S. Department of Agriculture.
Also, U.S. packers will need fewer cattle early next week with plants closed on Monday in observance of Martin Luther King, Jr. Day.
CME feeder cattle extended its losing streak to seven, their longest stretch of declines since July 2011, following steep live cattle market losses.
January feeder cattle futures ended 1.25 cents/lb. lower, or down 0.84 per cent, at 147.075 cents. Most-actively traded March finished at 148.225 cents, down 2.15 cents or 1.43 per cent lower.
Hogs down with live cattle
Hog futures closed moderately lower in response to the pullback in the live cattle market, traders and analysts said.
"Pork may have to come down to compete with cheaper beef as a result of lower cattle prices," one trader said.
He said live cattle futures’ fallout erased earlier hog market gains fuelled by higher cash hog prices.
Packers used their positive margins to pad inventories before the weekend and ahead of Monday’s holiday, traders said.
The government Wednesday morning showed the average hog price in the most-watched Iowa/Minnesota market at $86.08/cwt, up 93 cents.
The average pork packer margin for Wednesday was at a positive 30 cents per head, compared with a negative $3.30 on Tuesday and a negative $2.55 on Jan. 9, according to HedgersEdge.com.
Spot February hogs settled off 0.1 cent per lb, or down 0.12 per cent, at 85.15 cents. Most-active April ended at 87.425 cents, 0.175 cent lower or down 0.2 per cent.
— Theopolis Waters writes for Reuters from Chicago.