US cattle prices to fall further still?

THE Chicago August feeder cattle contract closed on Monday (8 June) at 74.5¢/lb, up slightly from the 74.1¢/lb close a week earlier. Many traders believe this is still not the market bottom, despite the precipitous drop from 83¢ in mid-December.

This is an unusual year for the US cattle industry as both producers and packers are losing money. Cattle slaughterers need a live cattle price of 61.75¢/lb to break even, based on overheads and beef prices, but year-to-date the average live price for finished cattle have been higher at 63.50¢/lb, according to analysts.

Packers are keeping their slaughter rate down because they are losing money. This in turn is slowing down clearing the backlog of “front-end” supplies in the nations feedlots. The dressed weight of slaughtered cattle is still 24 lb higher than last year, because producers are hanging on to their animals longer in the hope of better prices. Understandably, packers are reluctant to bid up for live cattle and this is preventing cattle producers from swinging into the black.

One factor that could help break the trend would be a jump in retail beef demand. The USA is in the midst of the barbecue season which is helping demand. However, it is worth noting that the retail beef margin has averaged 2.6% this year, compared with 3.2% for pork and retailers are likely to feature the more profitable alternative.

Pigs bring out the Chicago bulls

PIGS extended their gains this week, with the Chicago June lean hogs contract rallying to 62.95¢/lb on 8 June, up from 61.8¢/lb on the week. The market has turned bullish, partly on expectations that wholesale pork prices will rise because of a slowdown in the slaughter rate.

The slower slaughter rate – due to warmer weather – has cheered the market. The weekly kill is only 3% above last years level at 1.683 million head and the Saturday kill was only 27,000 pigs. The retail margin for pork has averaged 3.19% year-to-date, compared with 2.46% last year. However, there are some warning signs out there. Some market analysts argue that pork production is still running at 10.3% above last year, while growth in demand is several percentage points lower.

Cash pig prices have inched higher, with packers paying 42.50-43.50¢/lb at the terminals on Monday, compared with 42.50¢/lb a week ago. The Iowa market for live pigs is unchanged from a week earlier at 40.00-41.50¢/lb.

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    Oversupply looms in US maize market

    LIKE wheat and soyabeans, the maize market was depressed further this week better weather, which let farmers get their maize in the ground early, and raised forecasts for this years yield. Already 98% of the maize crop is planted, compared with a five-year average for this point in the season of 88%.

    Demand projections are unlikely to climb to meet the supply. The Asian crisis appears to be deteriorating, so there is little hope of rally in US maize consumption in that region. As several analysts point out, the Japanese yen has depreciated against the US dollar by 13% since February, which means that US maize is still expensive in local currency terms.

    Seven-year lows in the wheat market also contributed to negative sentiment in maize this week. The Chicago July futures contract lost 11/2¢ over last week to close on 5 June at $2.37/bushel, then slipped another 41/2¢ on Monday to $2.321/2.

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    No rebound for US wheat

    PUNDITS who hoped wheat was due for a rebound after hitting a five-year low last week were wrong. The market is now at its lowest point since July 1991, with little sign of respite. Favourable crop conditions for both winter wheat harvesting and spring crop growth are driving down the futures market.

    The Chicago July futures contract closed on 5 June at $2.801/4/bushel, down 4¢ on the week and promptly lost another 4.75¢ on Monday to close at $2.751/2/bushel.

    Already 9% of the winter wheat crop is harvested, compared with a five-year average at this time of year 4%, and early reports suggest better-than-expected crop yields. As for the spring crop, 98% is reported to have emerged thanks to ideal weather conditions, well ahead of the 85% norm.

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    Good weather pushes Chicago soyabeans down

    SOYABEANS hit new contract lows during last weeks trading, driven mostly by the lack of weather problems. The Chicago July futures contract lost 21/4¢ during the week ended 5 June to close at $6.161/4/bushel and another 5¢ on Monday to $6.111/4¢/bushel.

    In the midwest bean farmers are enjoying great weather, which looks set to continue. The early start to this years planting and suitable conditions suggest that the US soyabean crop yield will be well above average, exacerbating the markets oversupply this autumn. Farmers have three-quarters of their crop in the ground, well ahead of the five-year average of 57%.

    Meanwhile, South America is overcoming its recent logistical problems and flooding the market with exports following its bumper harvest this winter. There is only a 10-day delay for South American exports now, compared with a 40-day delay a few weeks ago.

    Soya oil received some short-lived support early last week on concerns of frost damage to the Canadian canola crop, but the oil market soon retreated. The July contract lost 36 points to 25.64¢/lb during the week ended Friday, 5 June and another 3 points on 8 June to 25.61¢/lb.

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