Supply squeeze 'to keep cattle prices high'

Cattle prices, which for unfattened animals set fresh record highs, are to stay elevated, boosted by the shortage of US supplies increasingly evident in data on factors such as slaughter rates and feedlot population.

Futures in feeder cattle, those ready to go on feedlots, touched 164.325 cents a pound in Chicago on Thursday for October delivery, the highest ever for nearest-but-one contract, with the best-traded November lot hitting 165.10 cents a pound, a record for its position in the curve.

Futures in live cattle, fattened animals, also rose, but remained below all-time highs.

The rises come amid ideas of tightening supplies, as the industry returns to herd expansion after years of shrinkage, which drove the domestic cattle herd to 89.3m head as of the start of the year, the lowest since 1952.

As a sign of the compromised capability to rebuild numbers, US cow herd started 2013 at 38.515m head, the smallest since 1941.

Finally arrived…

The high cattle prices have been "on the cards for years", thanks to the shrinking herd, but the rally has been delayed by factors which have dissuaded farmers from rebuilding herds, Don Roose, president of Iowa-based broker US Commodities, said.

"You have had drought, or high grain prices, which kept cattle prices from rising," Mr Roose told,

However, the easing of drought, which has reduced to 36% the proportion of US pasture in "poor" or "very poor" condition, from 56% a year ago, coupled with declining grain prices has encouraged producers to reconsider herd growth.

"Last year, the worst drought in a century had led to increased slaughter rates and thus to a higher level of beef production than if there had been no drought," Commerzbank said.

"The situation is much more comfortable in 2013 because only roughly 7% of the country is currently affected by severe drought," compared with 21% a year ago

'High prices'

The change in dynamics is being reflected in depressed slaughter rates, with the number of cattle reaching abattoirs last month at the second-lower level ever.

Meanwhile, the number of cattle placed on US feedlots last month was, at 1.79m head, down 10.9% year on year, and the lowest August level on records going back to 1996.

The overall feedlot population, at 9.88m head, showed its lowest September number in a decade, signalling tight beef supplies ahead which bode well for prices of both the meat and cattle.

"The reduced supply of beef should ensure that US retail prices for beef remain high. Live cattle prices are thus also likely to continue trading at correspondingly high levels," Commerzbank said, adding that the picture remained less clear for feeder cattle.

"Rising corn prices could weigh on prices for feeder cattle, since higher feed costs make it less attractive to increase feeder cattle herd sizes."

US Commodities said that in the cash market, fed cattle should "approach $130 per hundredweight [130 cents a pound] going into year end," compared with current levels around $125 per hundredweight.

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