June 21, 2011


US cattle futures surge to seven-week high



US cattle futures bounded to a seven-week high early on Monday (Jun 20) after a government report on Friday (Jun 17) showed a smaller-than-expected feedlot cattle supply.


Volume-leader August cattle has increased nearly 7% since last Wednesday, which has some analysts concerned about its ability to advance much more as beef sales should slow after the US Independence Day holiday on July 4. Hogs advanced, pushed higher by a near US$3 jump in the closely watched Iowa/Minnesota cash market on Friday, as investors are betting a seasonal drop in hog numbers will keep cash going up. In cattle, Monday's gains were in line with the forecasts that followed Friday's report.


The report showed 4% more cattle feedlots on June 1 than a year ago, while analysts, on average, expected 5.4% more. Also, that June 1 supply was down 2.5% from a month earlier. "The news is fine, but this rally is huge," said Bob Short, analyst at PFG Best, who worries the futures market may be running out of steam. If futures finish higher on Monday and August can move through chart resistance near US$1.1270, then US$1.15-$1.16 is possible, said Short Friday's report was the first hard evidence that cattle supplies are coming down.


For months, analysts had expected a decline but numbers stayed high as cattle from Mexico and from the drought-damaged pastures in the southwest kept flowing into feedlots. "I think our bias for the next two weeks should still be up, but we've had the big gains," Rich Nelson, analyst with Allendale Inc, said of the cattle. After those two weeks beef demand should slow, which it typical does during the hottest period of summer. "We are doing this last minute buying for the Fourth of July. It is a wasteland after July 4 in terms of demand," Nelson said of beef sales.


Cash cattle markets were quiet on Monday but analysts and feedlots expect at least US$1 higher sales this week of US$110 per cwt or more. The June futures currently reflect at US$111.8 per cwt market. At 11:30 a.m. CDT (1630 GMT), June cattle LCM1 were US$0.18, or 1.64%, at US$1.1155 per lb and August LCQ1 was up US$0.016, or 1.45%, at 111.8 per lb. Feeder cattle had the biggest gains of the day in the livestock sector, lifted by the higher cattle and by the outlook for smaller supplies and higher cash prices.


Monday's gains in feeders follow a 7.3% gain last week. That was the largest weekly gain since 10.7% during the week of May 5, 1996. On Monday morning, August feeders 2FCQ1 were US$0.029, or 2.2%, at US$1.3555 and September 2FCU1 was up the 3.00-cent limit, or 2.25%, at 136.575. Hog futures had solid gains on Monday, lifted by last week's higher cash markets and by prospects for higher cash this week as hog supplies decrease, traders said.


"Even though they have negative margins, packers are bidding up for hogs because of increased retail busies and tight hog numbers," said Tom Cawthorne, CME hog trader with R.J. O'Brien. Supermarkets also are buying pork for U.S Independence Day promotions. In midday trading, CME July hogs LHN1 were US$0.01675, or 1.75%, at US$0.97325 per lb and August hogs 2LHQ1 up US$0.014, or 1.48%, at 96.250.

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