Cattle futures ease in US for fear of supply bottleneck
US cattle futures prices have eased off over the past few days following signs that the industry is still suffering from a bottleneck in the nations feedlots.
On the surface, the latest US Departmant of Agriculture Cattle on Feed report would appear bullish. The number of store cattle placed in feedlots with a capacity of 1000 head or more during September was down 2% from a year ago at 2.65 million feeder cattle.
However, the average weight of these cattle entering the feedlots to be fattened up for slaughter remains high and this will increase the future supply of beef to the packing houses. As many as 941,000 head weighed over 800lbs (364kg) and 796,000 weighed between 700 and 800lbs.
On the positive side, there was a 3% year-on-year increase in the number of finished cattle marketed to the packers, at 1.86 million head. This accelerated pace will help clear the backlog of cattle but market analysts warn the slaughter rate is still not high enough to tighten up the market.
The Chicago November futures contract for store cattle settled on Wednesday 21 October at 71.85¢/lb, down from 73¢ at the start of last week prior to the Cattle on Feed report.
So far, the cash prices paid for live or fed cattle by packing houses are holding on to their gains following their strong rally in early October. The market is situated around 63¢/lb, compared with 61¢ a week ago and 57¢/lb a fortnight ago.
However, many analysts fear the cash market is due for a correction and this is also helping to drive futures prices lower.
US pig gloom as Russia aid fails to materialise
AFTER a 10% price rally last week on hopes that the US Department of Agriculture (USDA) would ship pork as food aid to Russia, the market has suffered an attack of pessimism.
The US pig industry urgently needs some such export measure to help alleviate oversupply. However, USDA Secretary Dan Glickman has pointed out that he is still awaiting a formal request from Russia and that any food aid would comprise both grains and meat.
While the hope of immediate exports to Russia has diminished somewhat, the industry still faces growing domestic output next year. Producers are planning to expand in 1999, despite the 40% drop in pig prices from last year.
Economists at the USDA suggest that pig farmers were spared the full impact of the price fall because cheaper feed has helped protect their margins. This has made them more willing to step up their operations.
The Chicago October lean hog futures contract dropped from an intraday high of almost 45¢/lb on Wednesday 14 October to 40.4¢/lb on Tuesday 20 October.
However, the contract recovered some ground on reports of a 17% year-on-year drop in the amount of pork bellies in cold storage, which suggested an improvement in the supply picture for producers. The contract gained 0.7¢/lb on Wednesday 21 October to close at 41.1¢/lb.
Cash prices followed a similar pattern, dropping from 28¢/lb last week to 25¢ on Tuesday but recovering to 27¢ on Wednesday.