Chicago Mercantile Exchange live cattle futures closed higher in light volume on Friday, led by short-covering stirred by better-than-anticipated cash prices, traders said.
Cash cattle in Texas moved at mostly $133 per hundredweight (cwt), $3 higher than last week, feedlot sources said (all figures US$). They reported cash sales of mostly $132 in Kansas, up $2 from the week before.
Those prices came as a surprise given poor packer margins and planned meat plant shutdowns during the New Year’s holiday.
“Regardless of their margins, packers need to slaughter cattle. The thin holiday volume exaggerated today’s futures’ rally,” Oak Investment Group President Joe Ocrant said.
Investors are looking ahead to tighter cattle supplies in the coming weeks that could help pull up wholesale beef values, he said.
Friday morning’s wholesale price for choice beef was up 15 cents/cwt from Thursday at $197.08, and select rose 52 cents to $190.98, according to the U.S. Department of Agriculture.
Beef packer margins for Friday were estimated at a negative $73.50 per head, compared with a negative $72.55 per head on Thursday and negative $43.30, a week ago, as calculated by HedgersEdge.com.
December live cattle futures finished 1.15 cents/lb. higher at 133.85 cents, and February settled up 0.8 cent at 134.95 cents.
CME feeder cattle closed in tandem with higher live cattle futures.
Feeder cattle for January closed at 167 cents/lb., up 0.4 cent, and March finished at 167.8 cents, 0.6 cent higher.
Hogs up before report
CME hogs gained on position evening in anticipation of the USDA’s quarterly hogs report on Friday at 2 p.m. CT.
Analysts expect that report to show the U.S. hog herd declined due in part to a swine virus that is fatal to baby pigs. Such a decline should shrink pork production in the first half of 2014.
Analysts are split about the impact of the porcine epidemic diarrhea virus going into the report, Linn Group analyst John Ginzel said.
“One camp believes USDA will pick up the pig virus impact. Others say they didn’t in the September report, so why should they now?” Ginzel said.
Hog futures made headway despite Friday’s slump in cash hog and wholesale pork prices.
USDA data on Friday morning quoted the average price of hogs in the closely watched Iowa/Minnesota market at $72.94/cwt, $3.19 lower than on Thursday.
The morning’s USDA wholesale pork price fell $2.50/cwt from Thursday to $83.83, dragged down by the $12.45 plunge in costs for pork bellies, which are made into bacon.
Ample supplies of hogs at heavy weights are adding more tonnage to the retail sector at a time when bacon demand declines seasonally, a trader said.
February hogs closed up 0.35 cent/lb. at 85.65 cents, and April ended up 0.325 at 90.975 cents.
— Theopolis Waters reports on livestock futures markets for Reuters from Chicago.