March 8, 2007

Confident CME live cattle traders predict new record prices
 

Just as world equity markets two weeks ago were carefree as they reached new highs, most Chicago Mercantile Exchange (CME) live cattle futures traders are confident of more gains after recent record levels of open interest and record high prices in many contracts.

The months of February, April, June and August live cattle futures contracts hit record high prices last week. Friday's session set an open interest record of 284,221 CME live cattle futures contracts.

A broker said cattle showlists and carcass weights are down while slaughter are holding steady as wholesale beef demand has been stronger than most had expected though Lent season is already approaching.

Showlists are the number of cattle being shown for sale by feedlots and cattle owners, and lighter cattle carcass weights lead to lower beef production.

Cattle futures prices are predicted to climb above the record high of 103.60 cents per pound registered on Oct. 15, 2003, by the October contract.

However, a few traders and analysts said they believe cattle futures are vulnerable to the same type of selling stampede seen in world stock markets last week.

A broker in Montana said on a seasonal basis, traders are also expecting a decline in prices this week.

Several traders regarded Friday's (March 2) open interest record as an indication of speculative excess.

On a per-month basis, there are more long contracts than the amount of cattle on feed. Analysts said March and April each average about 1.9 million head of cattle sent to market, but there were 142,755 April cattle contracts open as of Tuesday morning (March 6), which equals 4,568,000 head of cattle, assuming 32 head per contract, with an average weight of 1,250 pounds.

If some factor or event does trigger a downturn in live cattle futures, many analysts and cattle pit traders agree price movements could become very volatile.