DJ CME Cattle Review: More New Contract Highs Follow USDA Data

US - Chicago Mercantile Exchange live cattle futures climbed to new contract highs Monday after Friday's U.S. Department of Agriculture cattle-on-feed report showed higher feed costs and after severe winter storms in cattle-feeding areas caused a big drop in the number of cattle entering large feedlots for fattening during January.
calendar icon 27 February 2007
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The most-active April contract jumped 112 points, to 97.30 cents per pound, or a 1.2% increase.

Cattle placed into large feedlots during January were 23.1% below a year ago.

The lower placements equated to a 3% decline in the total number of cattle in large feedlots Feb. 1, which was the first time cattle-on-feed were below a year earlier since October of 2005. It was also the largest year-over-year drop since 2003.

Analysts said the lower numbers supported the supply side of the bullish cattle market scenario.

"I think traders viewed the drastic January reduction in feedlot placements as a harbinger of persistent cutbacks through late winter and spring as feedlots deal with greatly elevated feed costs stemming from ongoing corn and soybean price increases," said Dan Vaught of AG Edwards and Sons. "Those expectations, along with the 3% annual reduction in the Feb. 1 U.S. feedlot population, translate into reduced fed cattle supplies during spring and summer."

Vaught also said cattle futures price increases may reflect widespread optimism about the meat production industry's ability to pass costs along to retailers and consumers this spring and summer.

Beef, pork and chicken prices have all risen substantially in recent weeks. Vaught says broiler prices (as shown in the USDA 12-city composite broiler price updated each Monday), have jumped 21.5% (from 65.83 to 80.01 cents/pound) since the first week of January, which means beef may face diminished wholesale price competition from cheaper cuts of meat.

In the CME live cattle futures pit, contracts changed hands in fast market conditions as those brokers who had sold before Friday's USDA report scrambled to cover their positions Monday. Also, trend-following fund accounts bought as technical charts showed prices continuing to post new contract highs.

Monday marked the fourth straight session of new contract highs for the months of June through December.

ADM bought February. Traders said cash-connected accounts at Fimat, Rosenthal and JP Morgan all sold April.

Source: FX
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