Live Cattle Futures Hit Record High

Jan 07, 2013

Cattle Futures Climb as Supplies Shrink

Live cattle futures reached a record high last week and it’s believed that shrinking cattle herds in the U.S. - given the severe drought in the Farm Belt this past summer, has been as a major catalyst for the climbing live cattle futures.

Futures for live cattle have been steadily climbing for the past three weeks, especially since traders predict that cash prices for cattle will eventually increase as a direct response to shorter supplies.

A report from the U.S. Department of Agriculture back in Dec. 2012 said that the number of young beef cattle headed for feed lots declined in Nov. 2012 for the sixth straight month. This market pattern is a sure sign that domestic cattle supplies will be tight in the first half of 2013.

The U.S. drought has been especially worrisome for cattle ranchers in Oklahoma and Texas who have been struggling to maintain their livelihoods as the heat and lack of rainfall have left pastures barren and feedstuffs scarce and expensive. The U.S. cattle herd has been on a steady decline in recent years, but it’s now reached a six-decade low.

Another factor contributing to the jump in live cattle futures is the increase investment in the market by hedge funds.

It’s been predicted that the cattle prices will soon hit U.S. beef consumers over the next few months as the supply chain will continue to pass along their higher costs to food retailers and restaurants, which will eventually get picked up by the consumer.

The U.S. Department of Agriculture outlook for 2013 is that total beef production will drop 5% to 24.5 billion pounds from 2012.

Video: Will the 2025 USDA December Crop Report Be a Market Mover/Surprise?

Historically, the USDA December crop report is a non-event or another dud report as the USDA reserves any final supply changes to the final report in January of the following year in this case 2026. But after the longest U.S. government shutdown in history at 43 days and no October crop report will they provide more data/surprise and make an exception?
Our China U.S. soybean purchase tracker is now at 26.6% or a total of 3.2 mmt but for traders it’s taking too long to unfold.
The final Stats Canada production report was bearish canola and wheat projection a record crop in both (it adds to the global glut of supplies) and bullish local corn and soybean prices in Ontario/Quebec thanks to a drought. It will not help the fund flow short-term, the USDA may need to offset it?
A U.S. Fed interest rate cut of another 25-basis point next Wednesday (probability 87.1%) could help fund flow and sentiment in stock and ag commodities into year end.
More inflows into Bitcoin this past week saw prices rebound back above 90,000 with support at 82,000 and resistance at 96,000.
A V-shaped bottom in cattle suggest the lows are in after Mexico reported another new world screwworm case. Lower weights, seasonal demand and higher U.S. beef select/choice values with a continued closure of the Mexican border to cattle will result in a resumption of higher cattle futures into yearend.
Australia is expected to produce its 3rd largest wheat crop ever at 36 mmt adding to the global glut of supplies.
Reports of ASF in hogs in Spain the largest pork exporter in Europe could see the U.S. win more pork export business long-term.
If the rains verify into next week of 3-5 inches for Brazil it would go a long way to fixing the dry regions from the last 2-months, but the European weather model has been wrong for the past 2-months!
Natural gas futures are surging to the 3rd price count as frigid hold temps set in.
CDN $ is also surging to end the week on a very resilient economy and better employment numbers suggesting no interest rate cuts next week.
Finally, the CFTC report showed funds were net buyers of soybeans but sellers of corn, canola and wheat. In real time the funds have gone back to selling as they take some profits.