U.S. live cattle futures closed slightly lower on Tuesday as investors worried that talks in Washington may not resolve the "fiscal cliff" that has been hanging over commodity and equity markets, said analysts and traders.
The lower stock market, despite some encouraging economic news, had cattle investors favouring the sell side.
Chicago Mercantile Exchange livestock traders worry that red meat demand could suffer if a deal to resolve the nation’s fiscal woes is not reached by the early 2013 deadline.
"We’ve got some competing issues. We’re waiting for cattle supply to decrease as we get toward the end of December. On the other hand, there are renewed concerns about the budget talks," said Allendale Inc. chief strategist Rich Nelson.
CME December live cattle closed down 0.025 cent per pound to 128.375 cents. February closed down 0.075 cent at 132.325 cents (all figures US$).
Bullish December live cattle investors expect cash cattle to trade no worse than steady with last week’s sales of $128 per hundredweight (cwt) due to tight supplies after back-to-back droughts. The droughts caused U.S. cattle producers to trim the herd to its smallest in 60 years.
Investors also expect good wholesale beef sales as grocers on the East Coast gradually restock meat cases in the aftermath of Hurricane Sandy.
But, more bearish traders said packers may curb spending by cutting slaughter to shore up their sagging bottom lines and to help boost wholesale beef values.
Fewer than 2,000 head of cash cattle moved in Texas on Monday at $128/cwt, a feedlot manager said. The packer who bought those cattle immediately dropped bids to $124 against asking prices of $130, the manager said.
There were no reports of cash cattle bids or asking prices elsewhere in the U.S. Plains.
The wholesale price for choice beef on Tuesday morning was $197.04/cwt, up 93 cents from Monday, and select cuts were at $175.50, up $1.47, according to the U.S. Department of Agriculture.
CME feeder cattle slumped amid live cattle market weakness and higher corn prices. Higher corn prices raise feed costs.
January feeder cattle closed 0.425 cent/lb. lower at 146.925 cents. March finished down 0.2 cent to 149.9 cents.
Hogs slip as premium weighs
CME hogs drifted lower due to December futures’ premium to cash hog prices. Also, cash hogs were mostly lower Tuesday morning, but were forecast to trend higher through the middle of the week.
"The big deal this morning was the premium to cash, but people think futures and cash will close the gap before December goes off the board next month," a trader said.
USDA Tuesday morning showed the average hog price in the most-watched Iowa/Minnesota market at $76.19/cwt, 74 cents lower than Monday. December hog futures closed Tuesday at the equivalent of $82.375.
Futures buyers cling to the prospect that packers would raise bids for cash hogs while booking animals for this week — the first full slaughter week after the U.S. Thanksgiving holiday.
And, some believe packers may struggle to pull together supplies that have tightened in recent weeks based on lighter year-over-year hog weights.
Hog slaughter has been on the decline. The combined slaughter for Monday and Tuesday was 863,000 head, down 6,000 from last week and 1,000 less than for the same period a year ago.
December hogs settled at 82.375 cents/lb., down 0.1 cent. February finished at 86.725 cents, 0.25 cent lower
— Theopolis Waters writes for Reuters from Chicago.