U.S. livestock: Spreads help drive up CME live cattle futures

(Photo courtesy Canada Beef Inc.)

Chicago | Reuters — Chicago Mercantile Exchange live cattle closed higher on Thursday after investors bought October futures and simultaneously sold deferred months in a trading strategy known as bull spreads, traders said.

Some market participants, also through spreads, purchased live cattle futures and at the same time sold CME lean hog contracts.

There are bullish signals that market-ready, or cash, cattle may be close to bottoming out, while cash hog prices have tracked lower, said traders.

“Rather than go flat out long cattle, which is a little riskier, (funds) were long cattle and short hogs,” said CHS Hedging analyst Steve Wagner.

On Thursday packer bids for cash cattle in Nebraska and Texas were $101 and $102/cwt, respectively, versus at least $107 asking prices, said feedlot sources (all figures US$). Last week cash cattle in the U.S. Plains brought $103 to $105.

Extremely profitable packer margins and improved wholesale beef values bode well for cash prices.

But processors will resist paying more for supplies given ample numbers of cattle that have become heavier as temperatures moderate in the Plains, allowing animals to grow quicker.

The U.S. Department of Agriculture’s monthly meat export data showed July U.S. beef exports at 239.4 million lbs., up slightly from June and 10 per cent higher than a year ago.

Some live cattle trading months broke through technical resistance levels, which triggered fund buying.

October live cattle finished 1.525 cents/lb. higher at 106.225 cents, and above the 10-day moving average of 106.025 cents. December closed 1.325 cents higher at 111.125 cents.

Weaker corn prices and higher live cattle futures boosted CME feeder cattle contracts.

September closed 2.25 cents/lb. higher at 145.55 cents.

Hog futures slide

Slumping cash hog prices and softer wholesale pork values amid abundant supplies of heavier animals pressured CME lean hog futures, said traders.

Fund liquidation, spreading out of hogs into cattle and disappointing U.S. pork export data contributed to hog futures’ losses, they said.

October ended 2.1 cents/lb. lower at 61.45 cents, and December finished two cents lower at 58.275 cents.

Both contracts settled below their respective 10-day moving average of 62.165 and 58.392 cents.

USDA put July pork exports at 390.3 million lbs., down 13 per cent from a month earlier and down 3.8 per cent from a year ago.

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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