U.S. live cattle futures fade amid cash caution

Chicago live cattle futures closed lower on Tuesday amid concerns this week’s cash cattle prices may be no better than steady at a time when futures hold a sizeable premium to cash, traders and analysts said.

Traders are having second thoughts in the wake of disappointing cash cattle prices lately and fluctuating wholesale beef values, Doane Advisory Services economist Dan Vaught said.

The Chicago Mercantile Exchange (CME) saw February and April live cattle drop below their respective 20-day moving averages of 132.83 and 136.78 cents, prompting fund liquidation (all figures US$).

Spot February closed 0.45 cent per pound lower at 132.55 cents. April closed down 0.4 cent at 136.3 cents, down 0.4 cent.

About 2,500 cash cattle traded in Texas on Tuesday at $128 per hundredweight (cwt), which was steady with last week, a feedlot source said.

No bids or trades were reported elsewhere in the U.S. Plains, where cattle were priced at $130 or more.

Investors earlier had anticipated packers would pay roughly $129 for cash cattle due to futures’ premiums based on the tight supply outlook after drought catapulted feed costs to all-time highs last summer.

But beef packers, fighting negative operating margins, are resisting higher bids for cattle and have relied on previously contracted cattle to supply plants. They also have reduced slaughter over the past few weeks, which has made more cattle available for sale now on the open market.

HedgersEdge.com put the average beef packer margin for Tuesday at a negative $64.20 per head, compared with a negative $55.40 on Monday.

Also, packers are having trouble raising wholesale beef prices as consumers are tightening their budgets and paying down year-end holiday credit card debt.

"If you expect the cattle market to zoom higher, you almost need to have some leadership from the wholesale side," Vaught said.

The price for wholesale choice beef on Tuesday was $193.98/cwt, up 49 cents from Monday, while select cuts gained 71 cents to $183.31, according to the U.S. Department of Agriculture.

CME feeder cattle futures dropped with the live cattle market and firmer corn prices.

Spot January ended down 0.525 cent/lb. at 152.725 cents. Most-actively traded March was 1.1 cents lower, at 155 cents.

Hogs gain despite lower cash

CME hogs firmed late in anticipation for a seasonal pickup in cash hog values later this month, thus recovering from Tuesday’s cash price tumble, traders and analysts said.

USDA showed the average price for hogs in the most-watched Iowa/Minnesota market on Tuesday at $81.18/cwt, down $2.37 from Monday.

Packers are trying to realign their margins by cutting cash bids, one trader said. But the market may be getting ahead of a seasonal increase in pork demand within the next few weeks, which may support cash prices, he said.

The April contract led advances, lifted by spreads. Some of that spreading was by funds moving February long positions into deferred months ahead of upcoming similar action by followers of the Goldman Sachs Commodity Index.

Funds that track the index will shift their spot-month long positions mainly into April and June. The first of five days for that roll will officially begin on Jan. 9.

February settled up 0.05 cent/lb., to 86.35 cents. April ended at 89.95 cents, 0.4 cents higher.

– Theopolis Waters writes for Reuters from Chicago.