The slump in cattle prices - which hit a five-week low in
Chicago amid ideas that "fund liquidation has officially begun" – should be
curtailed by demand for packers for animals, supported by lower slaughter
Live cattle futures in the last session hit their weakest
close in more than a month on a spot contract basis, at 121.90 cents a pound
for the June lot.
The lot is now down 9.4% from a contract high set two weeks
ago, weakness attributed by many observers to seasonal factors, with the
passing of peak retailer stocking ahead of the US Memorial Day holiday.
This holiday, on May 29, typically sees a rash of barbecues,
and is seen as ushering in the US grilling season.
'Rallies will most
In the cash market, cattle fell to some $137-138 per hundredweight
on Tuesday, from levels as high as $147 per hundredweight a week before – a trend
some commentators saw continuing.
Jerry Stowell at Kansas-based broker Country Futures
forecast "$130-133 cash fed trade in the south this week," saying that "we
remain bearish cattle into late spring and summer".
He added that "the fund long liquidation has officially
begun," and reversal of the buying which drove the managed money net long in
Chicago live cattle futures and options last month to a three-year high of 138,355
"All rallies will most likely now fail. Sell them," Mr
However, USDA officials cautioned against overpessimism, saying
that "expectations are that prices will remain relatively strong, despite
declining from recent peaks".
They flagged a drop in average cattle slaughter weights –
estimated at 1,325 pounds, down 11 pounds year on year – as the higher cattle
prices have encouraged feedlots to make timely sales of animals, rather than
fattening them on.
"Packers maintain relatively high rates of cattle slaughter
to mitigate the effects of lower carcass weights," the USDA said.
Indeed, the dent to cattle prices has revived packers'
margins, which stood at $109.45 per head of cattle on Tuesday, up $24 from
Monday, and compared with negative margins of $6.25 per head a week before.
Feedlot margins to
The USDA highlighted the potential for some support for cattle
prices from a slowdown in marketing by feedlots, after a period when their
margins have been boosted by the high animal values and "relatively cheap
feeders purchased two quarters earlier".
"Feedlot operators could face declining returns if fed
cattle prices decline with increased supplies of cattle in the second half of
"To the extent that declining fed cattle prices squeeze
feeders' margins, feedlot operators may opt to keep cattle on feed longer in an
attempt to push bids higher."
The comments come amid ideas of a crossover in feedlot dynamics
from a period of squeezed supplies of fattened cattles – their inventories of
cattle fed for more than 120 days hit a 10-year low last month, according to
Steiner Consulting Group – to a richer pipeline ahead.
Placements of feeder cattle for fattening on feedlots in March
rose 11.0% to a record high. Fattening typically takes roughly six months.