U.S. Senate budget deal lends cattle, hog futures support

Chicago Mercantile Exchange live cattle futures closed higher on Wednesday, supported by the steep climb in equities in response to the U.S. Senate’s budget deal that puts the government one step closer to reopening soon.

“I hope that’s the case so we can get (U.S. Department of Agriculture) price data flowing again,” a trader said.

U.S. stocks closed more than one per cent higher on Wednesday after Senate leaders said they had a deal to reopen the federal government and raise the debt ceiling, avoiding the threat of a debt default.

USDA’s cattle-on-feed report, which is scheduled for release on Friday, likely will not be issued in time because of the U.S. government shutdown, analysts and traders said.

Most analysts polled by Reuters for the report said feedlot placements last month likely rose 1.6 per cent from a year ago as corn costs declined.

Traders bought CME live cattle in anticipation of at least steady cash prices this week based on tight supplies and improved wholesale beef demand.

Cattle sellers in Texas have not responded to spotty cash bids of $126 per hundredweight (cwt), feedlot sources said. Last week, cash cattle in Texas and Kansas moved at mostly $128/cwt, with sales of $127.50 to $129 in Nebraska (all figures US$).

Wednesday morning’s wholesale choice beef price, or cutout, was at $194.66 per cwt, up 10 cents from Tuesday. Select cuts gained 11 cents to $180.73, according to analytical market-research firm Urner Barry.

Processors will resist spending more for supplies while grappling with their eroding operating margins.

Estimated margins for U.S. beef packers on Wednesday were a negative $43.55 per head, compared with a negative $42.75 on Tuesday and a negative $37.40 last week, according to HedgersEdge.com.

The higher live cattle market and short-covering helped CME feeder cattle recover a portion of Tuesday’s big losses.

October feeder cattle ended 0.3 cent per pound higher, at 166 cents. November settled at 167.725 cents, up 0.225 cent.

Fund buying boosts hogs

CME hogs spiked to new contract highs, driven by fund buying that prompted short-covering, analysts and traders said.

“The outside markets didn’t hurt,” a trader said referring to Wednesday’s U.S. stock market surge.

Investors bought December futures that were at a discount to the CME’s restructured settlement price for the October lean hog contract that expired on Monday at 90.75 cents/lb.

CME Group said on Wednesday the final settlement price for October 2013 lean hog futures and options contracts is 90.62 cents based on a volume-weighted average.

The exchange was forced to alter its 2013 October hogs settlement price calculation due to the lapse of USDA price information during the partial government closure.

December hogs closed one cent per pound higher at 88.8 cents after posting a new contract high of 89.05 cents in electronic trading.

February finished at 90.65 cents, 0.85 cents higher. It eased from a new contract high of 90.825 cents.

Traders sold into Wednesday’s gains, guided by sentiment that cooler weather and new-crop corn would allow hogs to quickly gain weight. More hogs at heavier weight can pressure cash prices while increasing the tonnage of pork at the retail level.

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

Related story:
Expect more market volatility from U.S. shutdown, Oct. 8, 2013

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