U.S. livestock: Cattle futures up on larger-than-expected weekly slaughter

Chicago | Reuters — Chicago Mercantile Exchange live cattle futures closed higher on Monday after U.S. government data showed last week’s slaughter was bigger than the previous week’s, despite a fire that shuttered a Kansas beef plant.

The U.S. Department of Agriculture estimated the weekly U.S. cattle slaughter through Saturday at 651,000 head, up from 642,000 head the previous week.

The increase followed an Aug. 9 fire that damaged a Tyson Foods meat processing plant at Holcomb, Kansas. Analysts had predicted the plant would be shut down for months, reducing demand for cattle.

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USDA’s slaughter data was supportive to futures, indicating the loss of the Kansas plant might not be as significant as initially feared.

“It tells us that some of the lost capacity from the Tyson plant did get diverted into other plants,” said Don Roose, president of Iowa-based U.S. Commodities.

However, gains in CME cattle futures eroded throughout Monday’s session, with some traders questioning whether the strong slaughter pace would continue.

“There is no way the packers are going to gear this thing up and work everybody triple-hard, and do double shifts on Saturdays. It’s not their responsibility to keep the industry current,” said Dennis Smith, a commodity broker with Archer Financial Services in Chicago.

“They will pick up the kill a little bit. Margins are good and the incentive is there to do that, but eventually they will lower the bid,” he said.

CME October live cattle ended up 0.175 cent at 98.225 cents/lb. (all figures US$). CME October feeder cattle futures settled up 0.325 cent at 133.175 cents/lb.

CME lean hog futures closed higher, with the most-active October contract jumping nearly four per cent in a technical bounce after Friday’s limit-down close. Lean hogs had tumbled last week on uncertainty about potential purchases from China due to its ongoing trade fight with the U.S.

“Just volatile swings,” Smith said of the futures market.

CME October hogs settled up 2.025 cents at 64.025 cents/lb.

Smith noted that while U.S. pork production is higher than 2018 on a year-to-date basis, the October hog contract is trading roughly seven cents per pound higher than where the October 2018 contract traded at this time a year ago.

— Julie Ingwersen is a Reuters commodities correspondent in Chicago.

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