US cattle prices 'to revive' from BSE-fuelled drop

Cattle prices are poised for a rebound from falls inspired by the fallouts from the "pink slime" furore and mad cow disease, which on Tuesday saw Chicago futures hit their lowest in eight months.

Chicago's June live cattle contract, on its first day as the spot contract, fell 0.6% to 113.50 cents a pound at one point, the lowest for a near-term lot since early September last year.

US cattle prices often fall in late spring, with packers having already done most of their buying ahead of the Memorial Day holiday which marks the start of the barbecue season.

But the decline, which has topped 13% on spot contract terms from an early April peak, has been supercharged this year by fears for the impact on beef demand of the backlash against lean fine-trimmed beef dubbed pink slime by a former USDA researcher and last week's finding of a cow with mad cow disease, or BSE.

Cash vs futures 

However, this may be about to reverse, given the relative resilience of cash markets, where, in Texas, fed cattle reached $119 a hundredweight (119 cents a pound) last week, and in Nebraska $122 a hundredweight.

"The steep discount of nearby futures to the cash market is a supportive factor," broker US Commodities said, adding that "chart formations are turning positive" too.

At Purdue University, agricultural economist Chris Hurt said: "The much larger decease in futures prices as compared to cash prices could be signalling that futures participants have over-responded to the fears of the negative impacts on beef demand of these two events."

Indeed, futures prices implying live cattle will average 117 cents a pound for the current quarter, 114 cents a pound in the July-to-September period and 119 cents a pound in the October-to-December quarter seem "excessively low".

"Futures traders seem to be extra cautious, to the tune of $3-5 per hundredweight," Professor Hurt said.

Supply squeeze 

A "positive" factor for prices was that beef supplies "will continue to be very small this year", and forecast to decline by 4%.

Indeed, the drop in prices may only further dissuade farmers from herd expansion, which had not looked in train in earnest even before the latest setbacks, to judge by the elevated rates of slaughter of potential breeding animals.

"Cow and heifer slaughter has remained high in 2012, adding credibility to the argument that expansion has not begun, at least not in any major way," Professor Hurt said.

And he was backed in ideas of higher prices ahead by a Rabobank report which forecast a recovery on the global market, of which the US is major member, once a "short-term bulge" in supplies, largely from Brazil, has worked its way through.

"Cattle prices should recover again as markets shift to materially lower supplies, as the majority of the beef-producing countries are going through liquidation, a retention cycle or weather-related problems," the bank said.

Return to net beef importer?

However, Rabobank was more downbeat on near-term price prospects, given the fall-out from the lean fine-trimmed beef (LFTB) "debacle".

"Given ample fed cattle supplies, seasonal considerations and the impact of LFTB, prices are expected to remain under pressure," the bank said, foreseeing them standing at 115 cents a pound in mid-summer before "posting a sharp price recovery", again boosted by seasonal factors.

The "turmoil" surrounding LFTB could also return the US to being a net beef importer, for the first time in three years.

"The market-disrupting event is expected to increase the volume of lean trimmings imported into the US, especially from Australia and New Zealand," the bank said.

The US Department of Agriculture currently foresees US beef exports exceeding imports this year by 122,000 tonnes. 

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