The bull market in cattle, while vulnerable to some
short-term turbulence, is poised to continue "for the next few year", Societe
Generale said, sticking with a price forecast higher than investors are
The bank said that live cattle futures, which remain near all-time
highs, may see some retreat from the relative expense of beef, which could undermine
demand for the meat which has been resilient to record prices.
"The beef/pork price ratio has trended above the five-year
average, suggesting beef is relatively more expensive than pork," SocGen
analyst Christopher Narayanan said.
"Despite seasonal demand, this presents near-term risk to
beef and, presumably, live cattle prices if beef demand does wane into the end
of the summer."
A downturn in beef prices would reduce meatpackers'
enthusiasm for bidding up for finished cattle.
However, the 6.2% drop in placements in June of cattle on
for fattening on feedlots, revealed by US Department of Agriculture data, and
the particular drop in buy-ins of heavier animals suggest that "mid-term beef
supplies will be tighter than expected".
The drop in placements comes against a backdrop of record
prices of feeder cattle, those ready for fattening, as feedlots battle for supplies
with breeders desperate for livestock to rebuild herds, and exploit the lower
feed prices and improved pasture conditions brought by benign US weather.
Indeed, the extent of herd destruction encouraged by the 2012
drought, which extended in the southern Plains ranching areas until early this
year, was reflected in separate USDA data showing a 2% drop in US beef heifers
in the two years to June 1.
"This implies that herd rebuilding will likely take longer
than expected and the market may not see the full effect until at least 2016,"
Mr Narayanan said.
'Bull market in cattle'
Indeed, the USDA data sets "suggest that the structural bull
market is likely to continue over the next few years," he said .
"While consumer purchasing will likely be a function of relative
meat prices, continuing tight supplies will keep beef prices and, by extension,
cattle prices supported."
The bank stood by expectations of live cattle prices
averaging 165.95 cents a pound in the April-to-June quarter next year, above
the 149.90 cents a pound at which Chicago futures for June 2015 were trading at
on Wednesday, and more upbeat than a Goldman Sachs forecast on Tuesday.
Chicago's spot August live cattle contract touched 160.05 cents a
pound, coming 0.20 cents from the record high for a near-term contract set on
August feeder cattle set a fresh contract high of 223.375 cents a pound.