August 6, 2010

CME cattle futures rise to new highs

Fund buying stretched Wednesday's (Aug 4) CME live cattle rally into Thursday, as most contracts rose to fresh seasonal highs for a second straight day.

Lean hogs at the CME fell sharply, while feeder cattle prices also dropped. Live cattle Thursday picked up where they left off Wednesday, buoyed by optimism about this week's cash cattle prospects due to improving beef packer margins and boxed beef's gradual recovery.

Bids from packers for cash-basis cattle were reported from US$91-92 per hundredweight in the face of US$95-96 asking prices from sellers. Cash cattle generally moved at $93 a week ago, compared with mostly US$95 the previous week.

Thursday afternoon's USDA boxed beef data, which reflect wholesale beef prices, showed choice cuts up 20 cents per hundredweight. Select items rose 42 cents. Operating margin index for beef packers for Wednesday was minus $9.55 per head, compared with minus US$14.30 Tuesday, according to analysts.

Spot August and most actively traded October prices ignited buying as they marched upward, especially after October quickly brushed aside its 10-day moving average resistance barrier. Spreading into October out of August helped launch October to a fresh contract high.

Spreads involve trading two or more months simultaneously while taking advantage of the price difference between them.

Meanwhile, CBOT corn's spike, driven by the surge in CBOT wheat, inspired far-month cattle bulls. Costly corn might deter cattlemen from expanding their herds, which is supportive for cash cattle prices moving forward.

Spot August ended down 0.25 cent a pound, or 0.3%, at 92.90 cents. Most actively traded October finished up 0.50 cent, or 0.5%, at 96.27 cents. December finished 0.60 cent higher, or 0.7%, at 97.95 cents.

CME feeder cattle settled lower on profit taking. CBOT corn's strength weakened feeder cattle futures, because it implies higher input costs for cattle feeders.

Front months also drifted below 40-day and 100-day moving average support areas, which triggered sell orders. Additionally, traders sold October and bought September on spreads.

Spot August feeders closed 0.90 cent lower, or 0.8%, at 112.70 cents. Most actively traded September finished 1.25 cents lower, or 1.1%, at 112.67 cents.