April 26, 2011

 

US cattle futures decrease due to gradual beef sales

 

 

US cattle futures showed the biggest single-day loss in a month on Monday (Apr 25) because investors adhered to seasonal and technical signs and sold the benchmark June contract dramatically lower.

 

Feeder cattle had the biggest losses of the day, with five lead contracts down three-cent daily limit, as investors worried a spike in corn prices will hurt sales to feedlots.

 

Hogs also fell as talk surfaced pork plants have most of the hogs they need for this week, which may in turn pressure prices.

 

The battering in cattle futures was part of a seasonal trend in beef sales to start slowing now as supermarkets have bought what they need for spring time cookout promotions. A slowdown in beef sales can pull down cattle prices.

 

"The boxed beef grilling season is pre-booked and over by the first week in May. The market has known that for 25 years," said an analyst.

 

Also, a common play now, according to the analyst, is to buy June hogs and sell June cattle. That appeared to be used on Monday (Apr 25) as the losses in hogs trailed those in cattle.

 

Adding to cattle's downward trek was talk that several beef plants did not operate on Monday (Apr 25).

 

Tyson Foods Inc (TSN.N) said on Monday (Apr 25) it had a number of beef plants down for market reasons. In addition, after the futures closed, USDA estimated Monday's cattle slaughter at 92,000 head, down considerably from 120,000 a week earlier and 126,000 a year ago.

 

Beef plant margins have turned negative due to this year's high cattle prices. The loss on Monday (Apr 25) was estimated at US$19.85 for each head of cattle processed, according to advisory firm HedgersEdge.com.

 

At Monday's (Apr 25) close, April live cattle 2LCJ1 closed down 2.375 cents, or 2.01%, at 116.025 cents per pound and June 2LCM1 down 2.425 cents, or 2.1%, at 112.800 cents.

 

Selling in feeder cattle was fuelled by the lower live cattle market and by double-digit gains in corn.

 

May feeder cattle 2FCK1 closed down the three-cent daily limit, or 2.26%, at 129.975 cents per pound and August 2FCQ1 down three cents, or 2.19%, at 133.95 cents.

 

Hogs lost ground, but not as much as cattle, because market appears to have investors favouring the short side. This is the third consecutive lower close and analysts said the technical trend points lower.

 

Unlike cattle, supplies of market-ready hogs remain tight. But some of the pressure on hogs has been pork sales, which, like beef, may slow as supermarkets have what they need for the cookout season.

 

CME May lean hogs 2LHK1 closed down 1.4 cent, or 1.37%, at 100.650 cents per pound, while benchmark June 2LHM1 was down 1.525 cents, or 1.52%, at 98.525 cents.

 

It was June's lowest close in more than a month.