Goldman Sachs, which last week lifted its forecasts for grain futures, has raised hopes for cattle too, citing the prospect of a slowdown in numbers of animals for slaughter but a further rise in demand.

Indeed, the bank rated livestock futures as a better bet than crop futures over the next 12 months, expecting gains of 10.5% in cattle and hog prices compared with a loss of 5.1% in the likes of corn, cotton and cocoa.

The forecast followed upgrades to forecasts for Chicago futures in live cattle, those already fattened, on three, six and 12-month time horizons.

"We expect a tighter live cattle balance in 2011-12 to support prices," Goldman Sachs said.

Supply squeeze

Supplies of live cattle ahead will be limited by "sharply lower" numbers of unfattened animals available for putting on feedlots, after southern ranchers, their pastures ravaged by drought, destocked this year, selling unusually-young cattle for fattening.

"While current large feedlot counts point to large fed cattle supplies in coming months, low feeder cattle inventory will continue to limit placements in coming months and points to strong live cattle prices," Goldman said.

Meanwhile, demand for meat "will continue to improve", fuelled by further consumption growth in emerging market countries, which are expected to lift US exports again next year.

The US Department of Agriculture last week, in its latest much-watched Wasde report, edged higher by 20m pounds to 2.78m pounds its forecast for domestic beef exports in 2012, a figure which would represent 21% growth in two years.

Cattle vs hogs

The Goldman upgrade will offer a fillip to cattle investors fresh from the worst week for live cattle futures in nearly three months.

Prices of Chicago's near-term contract fell every day last week, by a total of 3.2%, having set a record intraday high of 125.375 cents a pound on November 4.

And the comments struck some chord, with prices for later-dated live cattle contracts, such as the August lot, posting small gains in late deals, even as teh Decenber lot eased 0.2% to 120.35 cents a pound, amid a collapse in beef packers' margins.

Beef packers were making a loss of $73.40 per head of cattle on Friday, up from a loss of $70.50 a head on Thursday, US Commodities said.

Weakness in the December contract "indicates the packer believes he will soon get more leverage over the feedlots" thanks to the margin pressure.

Flat hogs

Goldman was more mixed on the outlook for hog prices, sticking by a forecast of 95 cents a pound on three, six and 12-month time horizons, implying short and far-term gains, and medium-term losses.

"We see risks of further modest expansion of the US hog herd on continued positive margins and rise in litter rates," the bank said.