Investors have seen the best of the cattle and hog rallies, despite rising export demand for US beef and pork, Goldman has said, ditching hopes of gains from livestock prices over the next year.

The investment bank cut target prices for Chicago lean hog and live cattle contracts, and downgraded its hopes for returns from the sector over the next 12 months to zero, from 4.0%.

The revisions reflected, for hogs, the record high level of 9.81 pigs per litter that US sows were on average producing, as of the March-to-May quarter, up by 2.1% year on year, slowing the rate of herd decline which helped sent hog prices to a record high in May.

"We expect this slower herd contraction to drag on the market in the near term," Goldman said, adding that it did not expect a "stark" return to an expanding herd by producers weakened by one of the sector's worst downturns in living memory for the sector.

"Producers are likely to continue to focus on paying down debt rather than expanding production, with margins finally turning positive in March 2010 followed continued losses since October 2007."

Feedlot expansion

Cattle's worsened price prospects reflected higher rates of placement of animals on feedlots, as they attempted to cash in on stronger live cattle and wholesale beef markets.

However, it acknowledged "upside" risks to its forecasts thanks to potential demand improvements, with US beef and veal exports running 26% higher than a year ago, more than double the 12% growth rate that US Department of Agriculture forecasters have pencilled in for the whole year.

Furthermore, rising corn prices, which Goldman believes will increase further, may reduce farmers' enthusiasm for expanding herds, by raising feed bills and squeezing margins.

Live cattle for August delivery stood 0.4% higher at 92.65 cents a pound in late morning trade in Chicago, with August lean hogs down 0.9% at 80.675 cents a pound