Chicago | Reuters — Chicago Mercantile Exchange feeder cattle futures spiked to a record high on Monday, driven by tight supplies of young calves for fattening at feedlots, traders said.
Fewer cattle are available now following years of drought in parts of the United States that have forced ranchers to downsize their herds. The U.S. herd is at the lowest level in 63 years at 87.73 million head.
“There are not enough of them (feeder cattle). This is the hangover from the drought of 2012, and we’re seeing that continue,” said Citigroup futures specialist Sterling Smith.
Buying in the neighbouring live cattle pit spilled over into the CME feeder cattle market, traders and analysts said.
May closed 1.1 cent per pound higher at 181.1 cents after setting a new contract high of 181.775 cents in electronic trading (all figures US$).
August ended 1.725 cents higher at 186.35 cents, and peaked at a new high of 187 cents.
USDA report boosts live cattle
CME live cattle rose for a fifth straight session, fuelled by Friday’s bullish U.S. Department of Agriculture monthly cattle-on-feed report, traders said.
Friday’s report showed the number of cattle placed in U.S. feedlots last month dropped unexpectedly from a year earlier amid a shortage of calves following prolonged drought in parts of the country, analysts said.
Investors zeroed in on futures’ bullish discount to last Friday’s returns for market-ready or cash cattle, even though those prices came in steady to lower than the previous week.
On Friday, cash cattle in Texas and Kansas fetched $145 to $146 per hundredweight (cwt), steady to $1 lower than the week before, feedlot sources said.
They reported Friday’s sales of $146 to $148 in Nebraska, steady to $2 lower compared with the previous week.
Weak wholesale beef values and uncertainty regarding this week’s cash prices limited CME live cattle advances.
So far, continued thin margins and the recent slip in beef cutout values presents obstacles for cash cattle prices this week.
Monday morning’s wholesale choice beef price, or cutout, was down nine cents/cwt from Friday at $232.74. Select cuts fell 58 cents to $221.06, based on USDA data.
HedgersEdge.com calculated the beef packer margins for Monday at an estimated negative $12.10 per head, compared with a positive $3.05 on Friday and a negative $77.95 a week ago.
April live cattle closed up 0.4 cent/lb. at 145.4 cents, and June ended at 136.825 cents, up 0.05 cent.
Mixed hogs finish
CME hogs ended mixed after a choppy session, supported by anticipation of a cash price bounce, but pressured by their premiums to the exchange’s hog index at 117.08 cents, traders said.
May hogs closed up 0.05 cent/lb. at 120.975, but June ended down 0.3 cent at 124.225 cents.
In spite of Monday’s weak cash hog prices, there are expectations that packers will raise cash bids soon for supplies to accommodate this week’s production, Smith said.
And June futures are overpriced based on CME’s hog index, but appear to be poised for a technical breakout above the 40-day moving average of 124.478 cents, he said.
— Theopolis Waters reports on livestock futures markets for Reuters from Chicago.