Chicago Mercantile Exchange (CME) feeder cattle futures rose on Friday, led higher by deferred contracts, on expectations for lower cattle feed costs following a government forecast for a big build in corn supplies, traders and analysts said.
The U.S. Department of Agriculture (USDA), in its May supply and demand report released Friday, forecast a 164 per cent increase in the supply of corn next year in the United States due to an expected record crop of over 14 billion bushels.
Chicago Board of Trade (CBOT) corn futures prices plunged two per cent on Friday due to the forecast for a big buildup of corn stocks from a 16-year low this summer to a nine-year high when the new-crop harvest begins this fall.
“In feeders, from August on out, the report was bullish because it is saying there should be some cheaper corn and cheaper feed once the cattle are placed on feed later this year,” said Dennis Smith, a broker for Archer Financial.
CME August feeder cattle were up 0.65 cent/lb. at 146.625 cents/lb. and feeders for delivery in September were up 0.975, at 148.825 cents/lb.
Record-high beef supports cattle
Most live cattle futures ended firm as well on the brighter prospects for feeding cattle and on continued jumps to record highs in the wholesale beef market.
“Beef continues going up so it looks like the demand for beef is still out there,” said Jack Salzsieder, analyst for K+S Financials.
Spot June was down 0.1 cent/lb. at 120.45 cents/lb. but the decline was slowed due to chart-based signals.
“Cattle futures are oversold and there is technical support in the June contract at the 120 level. They’ve bounced off that level three times,” said Sterling Smith, futures specialist for Citigroup.
Some overhanging pressure was on cattle futures because of a late-week sag in cash cattle and on concern the high beef prices might begin to cut into consumer buying of choice beef cuts just ahead of the summer grilling season.
“Cash cattle were lower this week so that may bring in a little selling. That and McDonald’s dropped their third-pound Angus beef burger because of high prices,” Salzsieder said.
USDA’s wholesale boxed beef market report on Friday showed choice beef carcasses up six cents per hundredweight at a fresh record high $205.55/cwt.
Live cattle for August delivery were up 0.25 cent/lb. at 120.775 cents/lb.
Gains in cattle were restrained by bearish data in USDA’s supply/demand report released on Friday.
“The report for meat supply/demand was probably a little bearish for cattle futures. USDA increased beef production for this year 227 million pounds and that’s due to the heavier cattle coming to market,” said Archer’s Smith.
USDA pegged this year’s production of beef at 25.107 billion lbs. versus 24.88 billion in its April report.
In its first outlook for 2014 production, USDA forecast beef production at 24.105 billion pounds.
“They forecast a four per cent decline next year in beef production but increased hog production 2.5 per cent and increased broiler production three per cent,” he said.
Hogs hampered by seasonal considerations
CME lean hog futures turned lower on expectations for a seasonal decline in pork markets and a steadier tone to cash hog markets on Friday than seen earlier in the week.
Cash hogs traded $1/cwt higher in the eastern U.S. Midwest on Friday while prices held steady in the western part of the region as packers bought animals for next week’s slaughter needs, dealers said.
Some packers were reducing slaughter due to poor profit margins.
Lean hogs for June delivery were down 0.075 cent/lb. at 90.5 cents/lb. and for July down 0.325 at 90.9.
The government’s supply/demand report on Friday indicated waning export sales of U.S. pork.
“USDA revised down its estimate for pork exports by 177 million lbs. and that’s not good news for hogs,” Archer’s Smith said.
USDA on Friday forecast U.S. pork exports for this year at 5.028 billion pounds versus 5.205 billion in its April report.
In its first outlook for 2014, USDA pegged pork exports at 5.255 billion lbs.
— Sam Nelson covers ag commodity markets for Reuters in Chicago.
McDonald’s cuts Angus burgers in U.S. as beef prices rise, May 9, 2013