June 21, 2011


US cattle prices surge



US cattle prices increased drastically again on Monday (Jun 20), with feeder cattle reaching limit up for the third consecutive session.


As data reflect a decline in feedlot animal populations, buyers were encouraged to raise their bids.


Live cattle for August, the best traded lot, stood 1.6% higher at 111.975 cents a pound in late deals in Chicago, seeking its highest close in six weeks, and taking its gains in three sessions nearly to 8%.


Feeder cattle, animals ready to be placed on feedlots rather than the live cattle already fattened for slaughter, stood up the maximum three cents that the Chicago exchange allows, taking the contract to 135.65 cents a pound, also up nearly 7% since Wednesday (Jun 15).


"Cattle are in a run-away to the upside," a broker said.


"We got the bullish US cattle on feed report, and we are off to the races again today."


The USDA briefing on Friday (Jun 17) showed US feedlots running, at 10.9 million cattle, with some 140,000 fewer animals as of the start of the month than investors had expected, if a number higher than at the start of June last year.


The shortfall was down both to a jump in sales of cattle for slaughter to well above expectations as well as to a 10.8% slide in the number of animals placed on feed last month, compared with a year before.


In part these dynamics reflected the difficulty some feedlot operators are having in turning a profit in the face of high corn prices.


"Feedlots are finding it increasingly difficult to realise a positive margin," a report from Paragon Economics and Steiner Consulting said.


"Live cattle prices are still far from where they should be in order to encourage placements," despite gains in futures markets which were echoed on cash markets, where prices gained some US$3-4 a hundredweight in the south of the US last week to hit US$109-110 a hundredweight.


In the north, prices rose by US$4-5 to reach US$111-112 a hundredweight.


However, the slide in placements was also seen down to supplies of feeder cattle dwindling as long foreseen, after being boosted by drought in Mexico and the south of the US.


"With the smallest calf crop in over 50 years, feedlots will find it increasingly difficult to find feeders that have breakevens anywhere close to acceptable levels," Paragon Economics and Steiner Consulting said.


With feeder cattle supplies potentially dwindling, and live cattle supplies coming out of feedlots to dwindle as lower placements feed through, the USDA data was bullish across the board, an analyst said. 


Nonetheless, the analyst was surprised by the extent of Monday's reaction, given the strong moves the market has already made this past week.


The broker added, "With all due respect to the bull outlook, we question the speed to which we are rising."


Price rises are seen being fuelled by buying by speculators who had a relatively small net long position in live cattle, and were net short in feeder cattle, last week heading into the rally, official data show.

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