May 9, 2011

 

US cattle futures experience largest loss since 2008

 

 

US cattle futures on Friday (May 6) posted the largest weekly percentage drop since 2008 as falling beef prices and declines in other commodity markets had funds rushing to sell, traders said.

 

Hogs finished lower for the day and for the week as they too were pressured by lower outside markets and by this week's lower cash pork markets.

 

June cattle futures dropped 6.3% this week - the largest drop for a lead contract since December 2008.

 

"The downdraft from silver is really messing up the entirety of the commodity complex since so much of the selling in the hogs and cattle is hedge-fund related and is due to margin calls to cover losses in other markets," traders said.

 

The silver market had the biggest sell-off this week since the 1980 collapse when the Hunt Brothers tried to corner the market.

 

The rush by funds to sell disrupted the normal "rolling" process in cattle and hogs, which was due to start on Friday (May 6). It was expected that Funds would be used to buy deferred cattle and hogs, and for the selling of nearby contracts to move longs further back. But, instead of rolling, they just sold.

 

"People bought August (cattle) and sold June in anticipation of the roll that never happened and then they had to bail out of those positions later," said another trader.

 

As a result, August cattle and July hogs finished lower because the funds did not buy, traders said.

 

Investors have been selling cattle and hogs lately on worries high gasoline prices and the cool, wet spring have slowed meat sales. Those attitudes were helped by steady declines this week in wholesale beef and pork prices

 

At the CME, June cattle 2LCM1 closed up 0.100 cents, or 0.09%, at 109.850 cents per lb and August 2LCQ1 went down 0.300 cents, or 0.27%, at 111.575 cents.

 

Feeder cattle finished higher, supported by double-digit losses in the corn. May 2FCK1 closed up 0.500 cents at 129.125 cents per lb and August 2FCQ1 went up 1.025 cents at 132.775.

 

While hog futures finished mostly lower on Friday (May 6), traders expect better markets next week. Seasonally, hog numbers decline in late spring and early summer, which should support prices, they said.

 

"The thought is for good news next week for the cash hogs," said one trader.

 

Cash hog markets already have turned, with prices at the important Iowa/Minnesota market up US$3.41 per cwt over the past two days.

 

At the Chicago Mercantile Exchange, the lightly traded May hogs 2LHK1 closed up 1.775 cents, or nearly 2%, at 93.350 cents per lb, while the benchmark June 2LHM1 slipped 0.050 cents, or 0.05%, to 92.375 cents.

 

The May hog contract has very light volume and is not seen as a key market indicator. Its volume on Thursday (May 5) was 878 contracts compared with June's 25,596.