Chicago Mercantile Exchange (CME) feeder cattle futures slumped on Friday, capping their biggest weekly percent loss in six months, 1.8 per cent, as corn prices surged after U.S. government grain data.
The U.S. Department of Agriculture estimated U.S. corn stocks below trade expectations, sending Chicago Board of Trade (CBOT) corn prices up sharply.
The potential for rising feed costs could cause U.S. cattle and hog producers to cull their herds, resulting in a glut of supplies in the near term but fewer animals later, said Oak Investment Group president Joe Ocrant.
And feedlots, already operating deep in the red due to high-priced feed, might spend less money for the cattle they fatten before selling them to packing plants, he said.
Selling in the neighbouring live cattle market also pressured CME feeder cattle.
Spot January ended 0.975 cents per pound lower at 149.875 cents. Most-actively traded March was 1.475 cents lower at 151.45 cents (all figures US$).
Live cattle fall with cash
Live cattle futures dropped as investors brought futures closer in line with steady to lower cash cattle price, analysts and traders said.
CME live cattle was down 1.7 per cent for the week.
Cash cattle in the U.S. Plains fetched $126 to $128 per hundredweight (cwt), steady to $2 lower than a week ago, feedlot sources said. In Nebraska, dressed-basis cattle moved at $202 to $205, down $3, they said.
On Friday, live cattle February closed at 130.6 cents/lb., 0.95 cent lower. April ended at 134.55 cents, down 0.525 cent.
February and April broke through their respective 100-day moving average support levels of 131.19 and 135.01, which triggered fund liquidation.
Packers curbed cash spending to stabilize their fallen margins and prop up wholesale beef prices.
USDA put the cattle slaughter this week at 624,000 head, 22,000 less than for the same period a year earlier.
HedgersEdge.com put the average beef packer margin for Friday at a negative $65.10 per head, compared with a negative $66.75 on Thursday and a negative $50.70 on Jan. 4.
The price for wholesale choice beef on Friday was $194.24/cwt, up 43 cents from Thursday; select cuts slipped 47 cents to $183.49, according to USDA.
February futures led declines as funds rolled some of their long positions into deferred contracts on the fourth of five days for the Standard + Poor’s Goldman Sachs Commodity Index.
Two-sided hog trade
CME February hogs dropped as processors cut cash hog bids in the near term to realign their margins, traders and analysts said.
And they said the surge in corn prices fueled bearish hog futures spreads with the view that increased feed costs could led to tighter hog supplies later this year.
Hog futures ended the week down 1.9 per cent.
February hogs settled down 0.4 cent/lb., to 84.2 cents. April ended at 87.125 cents, up 0.025 cent.
The government on Friday showed the average hog price in the most-watched Iowa/Minnesota market $1.13/cwt lower at $82.65.
The average pork packer margin for Friday was at a negative $5.40 per head, compared with a negative $7.05 on Thursday and a negative $3.25 on Jan. 4.
– Theopolis Waters writes for Reuters from Chicago.