December 3, 2010

 

US cattle futures dip as investor confidence wanes

 

 

US live cattle futures were undermined on Thursday (Dec 2) due to waning investor confidence in the willingness of consumers or wholesalers to pay ever-rising beef prices.

 

The December contract settled at US$0.50 a pound, or 0.48% lower at US$1.0307, while February contract ended at US$0.30 or 0.28% lower at US$1.0647. Feeder cattle settled higher, the result of a late bounce attributable to lower prices for corn, which is used to feed the young cattle to slaughter size.

 

January feeders were up US$0.27 or 0.23%, at US$1.1867, while March was up US$0.22, or 0.18%, at US$1.1942.

 

Due to the questions about the willingness of beef markets to pay up for beef, traders had less confidence that cattle and feeder cattle futures would continue to set new highs.

 

Futures prices this week hit 26-month highs, and cash prices hit seven-year tops.

 

The wholesale choice composite beef carcass price was up 1% this week to US$163.48 a hundred pounds at midday, according to the USDA. This is the highest this quote has been since late August, but Don Roose, president of US Commodities, said it will need to rise further to compensate packers for the prices they paid for slaughter-ready cattle this week, because calculations show they probably are losing money currently.

 

Cattle this week rose to US$1.01, up to US$1.04 a pound on a live basis, with the USDA listing the average price around US$1.0250. Cattle traded last week from US$101 to US$102.

 

The market received some support from traders who felt a lower US dollar could continue to induce beef exports and a second day of higher stock prices indicated renewed hope in the economic recovery. Traders said some of the move toward higher stock prices came from a National Association of Realtors report saying its index of pending, existing home sales was higher in October.

 

Roose also said other factors may have played into trader psychology that took live cattle futures lower on the day. Seasonally, prices for the most expensive cuts of beef drop after this week because holiday bookings are complete.

 

Many traders also feel that the number of cattle placed into the feedlots over the last several months implies rising numbers of slaughter-ready cattle and even larger supplies in January. The USDA reported the number of cattle placed into the feedlots in August was 7% above a year earlier, and the number placed in September was up 2%.

 

Feeder cattle futures took a late bounce as corn prices fell away, traders said. The lowered cost of the feed would allow traders to pay more for the younger cattle to place on feed.