CME feeder cattle reach one-year high as corn falls

Chicago Mercantile Exchange (CME) feeder cattle futures rose to a one-year high on Tuesday in reaction lower cash corn prices and corn futures, traders said.

An expected bumper U.S. corn harvest should drive down feed costs for cattle and increase demand for young cattle to place in the nation’s feedlots, traders said.

“Demand for feeders is really good, the demand at these auction barns is really good. I expect that to continue and that will support feeders,” said Dennis Smith, analyst for Archer Financial.

Chicago Board of Trade new-crop December corn futures closed down 6-3/4 cents at $4.75-1/4 per bushel and cash corn markets fell as well (all figures US$).

Grain merchants said cash corn basis bids tumbled across the U.S. Midwest as the autumn harvest was about to get underway. Some of the cash bids were the lowest levels in two months.

U.S. farmers are expected to harvest a record-large corn crop this year despite the dry weather in August and early September that may have trimmed yields.

CME September feeder cattle closed 0.25 cent higher at 157.175 cents per pound and October was up 0.15 cent at 159.1 cents.

The September feeder cattle futures reached a session high of 158.4 cents, the highest price for a spot contract since June 15, 2012.

Cattle futures closed lower in choppy trading with the lower feed costs leading to ideas for increased beef production.

Sterling Smith, futures specialist for Citigroup said that although beef was firm last week “I don’t expect much in cattle futures. I think October will stay in a range from $126 to $128 for awhile.”

CME October live cattle closed down 0.6 cent at 126.2 cents/lb. and December was down 0.375 cent at 130.1 cents.

Good demand for cash cattle slowed the declines in cattle futures.

“Packers are short bought and I do think they need to buy cattle so that will support wholesale beef and support futures,” said Archer Financial’s Smith. “I see stiff resistance in the December contract at $130.70 and a close above that would lead to a breakout to the upside.”

Profitability of processing cattle was declining, according to Denver-based livestock marketing advisory service HedgersEdge.com LLC.

HedgersEdge calculated packer margins for beef on Tuesday at a positive $9.50 per head, down from $12.55 a week ago.

October cattle futures were also pressured by its premium to Friday’s cash cattle prices, analysts and traders said. Cash cattle in Texas and Kansas traded at $123 per hundredweight
(cwt), which was steady with the previous week, feedlot sources said. October futures closed at the equivalent of $126.20.

Analysts and traders said the prospect of a seasonal uptrend in cash prices underpinned December live cattle futures.

CME hog futures closed higher due to their discount to the exchange’s hog index, which was at 93.25 cents/lb. for the two days ending Aug. 29.

CME October hogs closed up 0.375 cent at 88 cents/lb. and December was up 0.225 cent at 84.975 cents. Profit-taking was noted after CME hogs rose nearly three per cent last week on fund buying.

Lower wholesale pork trade and at best steady cash hog markets limited buying enthusiasm in the hog futures market.

“Pork cutout was down over $2 on Friday and was down $5.60 for the week and I see more weakness developing this week,” said Archer Financial’s Smith.

Packer margins for pork on Tuesday were a positive $9.10 per head, down from $9.60 a week ago, according to HedgersEdge.com.

— Sam Nelson is a Reuters correspondent reporting on ag futures markets from Chicago.

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