Chicago Mercantile Exchange (CME) live cattle and feeder cattle futures fell on Tuesday on profit-taking after recent gains that were prompted by a steep drop in corn futures the past few days, traders said.
Traders said much of the activity in the cattle futures market was technical and said volatility should have been expected because the market had been overbought.
“We had a pretty good rally and it (April cattle) wasn’t able to get above resistance in the $129 area. That brought in a lot of local selling,” a CME floor trader said (all figures US$).
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Strong cash cattle markets in the Plains feedlot region late last week had helped underpin live cattle futures as did firm wholesale beef markets.
The feeder cattle market had soared since the release last Thursday of a U.S. government report showing much larger U.S. corn supplies than expected. The plunge to nine-month lows in corn led to speculative buying of feeder cattle futures on prospects that lower feed costs would boost demand for young cattle to put in feedlots.
“Cattle have had a nice, nice boost from feeders that got support from the breakdown in corn but the market isn’t quite there seasonally yet,” said Sterling Smith, market specialist for Citigroup.
“Technically, cattle have to go back down and test support at $122.25 in the June contract,” Smith said.
CME live cattle for April delivery were down 1.325 cents on Tuesday at 127.425 cents per pound. June was down 1.275 at 122.825 cents.
“A holding pattern is about right for cattle futures. I don’t see cattle going much higher until we get some seasonal demand showing up,” said Dennis Smith, a broker for Archer Financial.
“Cattle need some warmer weather to get the grilling season going and improve the demand for beef,” Smith said.
CME feeder cattle futures for April delivery closed down 0.8 cent at 144.725 cents/lb. May was down 0.575 cent at 147.1 cents. Declines in feeder cattle were slowed by another sag in Chicago Board of Trade (CBOT) corn futures.
“Feeders have gotten way ahead of the game and I see them coming down pretty quickly. There are no hedges that work, there’s no hope of buying feeders at this level and making money,” said Archer’s Smith.
The estimated margins for U.S. beef packing companies was a negative $31.05 per animal on April 2, compared with a negative $33.85 on April 1 and a minus $14.80 a week ago, according to Denver-based livestock marketing advisory service HedgersEdge.com LLC.
USDA’s wholesale boxed beef report early on Tuesday showed choice beef up $1.22 at $191.75 per cwt and select was up $1.05 at $189.36.
Lean hogs underpinned by firm cash
Lean hog futures were mixed with profit-taking and local selling weighing on nearby months but the market was underpinned by firm cash markets.
“Hogs are looking better with resistance at $92 broken in the June contract. It needs to clear that level for the next three sessions and if it does there is a new range of $92 to $96,” Citigroup’s Smith said.
CME lean hogs for April delivery were down 0.35 cent/lb. at 80.95 cents. May was down 0.05 cent/lb. at 89.95 cents.
June hogs were up 0.275 cent at 91.85 cents/lb.
Cash hog markets in the U.S. Midwest were $1 per hundredweight (cwt) higher on Tuesday as the supply continued to tighten on better demand, dealers said.
Estimated average margin for U.S. pork packing companies was a positive $2.50 per animal on Tuesday, compared with a negative $4.55 on Monday and a positive $9.70 on March 25.
The CME lean hog index for the two days ending on March 29 was 75.56 cents and for the two days ending March 28 it was 75.21 cents.
“Hogs look real good and I’m looking for a seasonal bottom. If June can clear resistance at $92 they should be okay. I see April testing resistance at $82,” Archer’s Smith said.
“Cash hog markets are improving and I’m looking for improved seasonal demand.”
— Sam Nelson reports on the Chicago markets for Reuters. Additional reporting for Reuters by Alyce Hinton in Chicago.
