Chicago Mercantile Exchange (CME) live cattle futures closed firm on Monday as the wholesale beef market remained near record highs and on improving profits for the nation’s beef packers, traders and analysts said.
Feeder cattle futures eased on a strong rally in Chicago Board of Trade corn futures and most lean hog contracts gained amid stubbornly strong cash hog markets.
Cattle futures traded very strong early in the day, turned down near midday on profit-taking and local day-trade activity, but ended the session firm.
“The focus is on changing packer margins which are up and that’s a big change,” said Dennis Smith, a broker for Archer Financial.
The estimated margins for U.S. beef packing companies on Monday were $42 per head in the black, up from $36.25 on Friday and above $3.90 a week ago, according to Denver-based livestock marketing advisory service HedgersEdge.com LLC.
“The better margins should give cattle some short-term support and the cash steer market could be higher early this week as well,” Smith said.
Cash cattle traded lower at $126 per live hundredweight last week and no new trades had yet been recorded this week (all figures US$).
Choice wholesale beef carcasses on Monday traded at $204.75 per hundredweight (cwt), down 23 cents/cwt from late on Friday but still near the record high that was hit late last week, according to the U.S. Department of Agriculture (USDA).
“Everybody is still talking about the big discount that futures hold to cash and the record high beef prices,” said Jim Clarkson, a broker for A+A Trading.
CME June cattle closed up 0.125 cent/lb. at 120.575 cents, and at a roughly $5.50/cwt discount to the fed cattle cash traded last week.
Feeder cattle volatile
Feeder cattle futures had soared on Friday as CBOT corn tumbled following a government report showing an expected big buildup in corn supplies next season.
However, feeders slid into the close on Monday as CBOT corn rebounded due to the tight old-crop supply of the main feedgrain, strong cash markets and ahead of the Tuesday expiraton of the CBOT May contract.
Higher corn prices increases the cost to feed cattle and can trim demand and prices for young feeder cattle to place on feed in the nation’s feedyards.
CME feeder cattle for May delivery were down 0.525 cent/lb. at 134.85 cents/lb. and for June were down 0.425 cent/lb. at 146.2.
Most hog contracts gain
Most lean hog contracts ended higher with the exception of thinly traded spot May which was down 0.075 cent/lb. at 91.925 cents.
Lean hogs for June delivery were up 0.425 cent/lb. at 90.925.
“Hogs (futures) were sold down pretty hard last week so they’re coming back a little from that and cash is up again today,” Clarkson said.
Cash hog markets in Iowa and southern Minnesota were 50 cents to $1 higher per hundredweight, steady to $1 higher in Ohio and steady in Indiana and Illinois.
Cash hog dealers said there was a tight supply in Iowa and Minnesota with some packers needing hogs but a slower demand was noted elswhere.
In contrast to the cattle business, packer and processor profit margins in hogs are lacking, leading to some outlooks for a lower hog futures market soon.
“It’s just the opposite in hogs, packer margins are coming down so once we get past the higher cash hog markets early this week, I see it coming down,” Smith said.
“The seasonals say we should be coming down pretty soon.”
Estimated margins for U.S. pork packing companies were $6.25 per head in the red on Monday, compared to a negative $10.35 on Friday and a minus $7.90 per head profit a week ago, according to HedgersEdge.com.
“Some say a seasonal high is in and we should be coming down, so there is a big tug of war going on in hogs and I’m not sure which way they’re going,” Clarkson said.
— Sam Nelson covers ag commodity markets for Reuters in Chicago. Additional reporting for Reuters by Alyce Hinton in Chicago.