Chicago | Reuters — U.S. live cattle futures closed higher on Friday, with the front contract gaining against back months, led by higher cash cattle prices, traders said.
Cash cattle traded as high as $120/cwt in the southern Plains on Friday, the U.S. Department of Agriculture said, up from trades a week earlier that ranged from $95 to $116 (all figures US$). The latest top cash price represented a significant premium over Chicago Mercantile Exchange (CME) live cattle futures, which have been mired below $1/lb., or $100/cwt.
The nearby CME June live cattle contract rose its daily three-cent limit for part of Friday’s session as traders scrambled to catch up to the strong cash market. June futures settled Friday up 2.875 cents at 97 cents/lb., while August live cattle ended up 0.825 cent at 97.825 cents/lb.
The firm cash trade overshadowed pressure from a larger weekly cattle and hog slaughter and a retreat in wholesale beef values this week from record highs.
The coronavirus pandemic this spring wreaked havoc in the meat industry, causing least 30 meat-packing plants to temporarily close over the past two months and sending wholesale beef prices soaring to historic highs.
The shutdowns also caused massive bottlenecks of market-ready cattle and hogs in the country, normally a bearish market factor.
As slaughterhouses start to come back online, livestock futures markets have remained volatile.
“It’s a weird, weird situation,” said Dan Norcini, an independent livestock trader. “We are seeing beef prices coming down from the stratosphere. Everyone sees this and is trying to figure out what it will mean in the live cash markets,” Norcini said.
Packer profit margins on Friday remained extraordinarily high at more than $900 per head of cattle, according to advisory service HedgersEdge.com.
Some traders suspect that meatpackers are paying up for cash cattle out of fears of a federal investigation into meat price disparities. U.S. President Donald Trump last week said he had urged the Justice Department to look into allegations that the meatpacking industry broke antitrust law because the price that slaughterhouses pay farmers for animals dropped even as meat prices rose.
“I really think these guys are running scared with the reports of the Justice Department potentially investigating price fixing … That is the only way you can explain what is going on with the front-month June cattle,” Norcini said.
CME lean hog futures fell Friday on weaker wholesale pork prices and worries about huge supplies of hogs in the country.
CME June lean hogs settled down 0.875 cent at 57.875 cents/lb. and the July contract ended down 1.05 cents at 57.75 cents.
After the close, USDA showed the U.S. pork cutout, an indicator of wholesale prices, down $3.67 at $110.12/cwt. The price for pork bellies, used for bacon, was down nearly $22 at $112.48, after rising above $200 earlier this week.
— Julie Ingwersen is a Reuters commodities correspondent in Chicago.