Online auctions feed cattle price recovery from six-year low

17.11.2016

Cattle futures approached limit up in Chicago on a rally attributed to stronger price data coming from US cash markets – including a newly-launched online exchange credited with boosting trading transparency.

Live cattle futures for December touched 108.35 cents a pound in Chicago, before easing back to settle at 108.20 cents a pound, a gain of 2.6% on the day.

The rally – which took futures, on a front contract basis, more than 14% above their six-year low set a month ago – was attributed in part to chart factors.

"From a technical perspective, the market is still in an uptrend," said Don Roose at Iowa-based broker US Commodities, with the December lot also trading above its 100-day moving average for the first time in three months.

Furthermore, the prospect of poor US weather helped, with cold limiting the ability of animals to gain weight.

"A major winter storm will bear down on the northern Plains Thursday and Friday with some snow lingering in eastern areas early Saturday morning," World Weather said.

"Blizzard conditions are expected and at times in Minnesota Friday. Livestock stress and travel delays are expected because of the storm."

'Increased in price by the minute'

However, strong prices on cash markets were also credited with boosting values, including an improvement in values at the Fed Cattle Exchange, which held its first online sale in May, and whose results have been since last month included in official US Department of Agriculture price data.

At Kansas-based broker Country Futures, Jerry Stowell said that the weekly session on the Fed Cattle Exchange "today started at $105 per hundredweight, and has increased in price by the minute.

"We now have seen several lots sell at $108.0 per hundredweight - $108.25 has just now been paid.

"It makes you wonder what packers would be willing to pay if we were not going into short kill week next week," with US Thanksgiving on November 23 curtailing operations in the livestock industry and beyond.

Mr Stowell flagged "great action and participation on this new exchange. Can't wait till I have some [cattle] ready to consign myself."

'Real transparency'

US Commodities' Don Roose also flagged the impact of the exchange's results in boosting the futures market, noting the confidence investors had in the data.

"Previously, you had the three big packers, and had not so much insight into what they were doing," Mr Roose told Agrimoney.com

"With the new exchange you have got real transparency of what is going on in the market – where packers are looking at, and at what price."

It was the results of Wednesday's exchange trading, "which really set off the rally in futures".

'Prices to remain under pressure'

The strength in prices also comes ahead of US Department of Agriculture data on Friday expected to show a 4.3% drop in cattle placements on US feedlots last month, implying weaker supplies of fattened animals ahead.

However, in a report on Thursday, the US Department of Agriculture was downbeat on beef prices longer-term nonetheless, flagging the dent from rising production expected in 2017.

The USDA last week raised by 280m pounds to 26.26bn pounds its forecast for US beef output next year.

"Given the higher 2017 beef production forecast and the large amount of beef currently held in cold storage, prices are likely to remain under pressure," the USDA said, adding that weakness in values had "begun to spill over into the retail price market.

"The retail choice beef price in September was $5.87 per pound, about 1% lower than August and 6% lower than 2015.

"Retail prices have been known to show a delayed response to changes in cattle and wholesale beef prices."


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