Explosive buying sees live cattle prices limit-up for third day

05.05.2017

Front month live cattle futures hit daily trading limits, for the third day in a row, as a very tight beef market drives demand for slaughter-ready cattle, at a time when there are fears that a recent snowstorm may have disrupted supplies.

June live cattle prices rose by their daily trading limit of 4.5 cents, to a contract high of 134.55 cents a pound, driven by fears of a short-term shortage, up some 13.5% in a week.

The contract eased later in the session, but was still up 1.0% on the day, at 131.35 cents a pound in late-morning deals, at a hefty premium to later dated contracts.

"The market is positioning itself as though the blizzard that swept through the Midwest last weekend will have a material impact on spot supplies," said Madeline Donlan, at Commonwealth Bank of Australia.

"Some feedlots are reporting fatalities and most are talking about slower cattle performance," she said.

Tight beef market

And Ms Donlan warned that these fears come at a time when demand for US beef is rising.

Despite a recent uptick in US cattle slaughter, which was recorded at 624,000 head last week, up 5.5% last week, the market for beef remains tight.

While often the focus is on the number of cattle coming to market, market participants would do well to pay more attention to the actual pounds available in the market at a given time," noted Steiner Economics.

Low slaughter weight

But the analyst noted that beef production was only up 4.4% year-on-year, at 501.2m pounds.

Based on these figures, Steiner calculates that the average weight of fed steers was at 844 pounds, down 4 pounds over the last two weeks.

The analysts suggested that beef for fed animals, of the sort traded in Chicago, was up only 1.7% year-on-year.

"Subtract from this the positive trade balance (more exports than imports) and the supply of fed beef in the market today may not be much higher than it was last year," Steiner said.


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