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Cash cattle seen rallying briefly, then fading

Agriculture.com Staff 02/10/2016 @ 9:25am

By Lester Aldrich and Theopolis Waters Of DOW JONES NEWSWIRES

CHICAGO (Dow Jones)--Market watchers are cautiously optimistic about a potential post-Memorial Day Chicago Mercantile Exchange live cattle futures and fed cattle market upswing into mid-June, but they paint a less-than-rosy forecast heading into the summer.

In early-April, fed cattle prices and corresponding CME live cattle contracts peaked at some of their highest levels of the year, ignited by reduced supplies in part because of costly feed, inclement winter and drought conditions last summer. This led to less meat available for retailers and pumped up beef cutouts, the federal government's survey of retail meat cuts.

Slaughter-ready cattle are delivered to fulfill live cattle futures contract obligations at the end of each futures contract month.

Live cattle trading months, cash prices and boxed beef values have tumbled since because of a seasonal bump up in cattle numbers. That lessened processor demand for animals as the three-day Memorial Day holiday neared, clipping fed cattle returns and ultimately undermining futures.

Friday, spot-month CME June live cattle settled at 91.05 cents a pound versus an April 5 close of 96.32 cents. Actively traded August finished at 91.15 cents compared with 94.32 cents on April 5. Fed cattle prices on a live basis last week averaged mostly $94.50 to $95 per hundredweight after reaching $100 during the week of April 5.

Grocer demand for beef cuts also suffered as meat buyers booked product hand-to-mouth as they stocked meat cases before the holiday. The average price for choice boxed beef cuts for the week ending May 25 was $163.78 after topping $166.88 the week after futures and fed cattle peaked.

Nonetheless, a short-term market snapback may be on the horizon due to reduced supplies over the Memorial Day holiday, which the meat industry regards as the official kickoff of grilling season. Furthermore, wholesale beef-buying interest intensifies as consumers choose to prepare meals outdoors.

Obstacles And Hurdles Remain For CME Cattle Rally

A brokerage firm's trader said CME live cattle futures have several hurdles to clear before it can mount a late-May or early-June offensive, one of which is exchange position limits. CME exchange position limits, or "comedown" requirements, specifies that no person can own or control a specified number of long or short contracts in the expiring month. The first comedown date for the nearby June contract is June 4, with the second date a week or so before the June contract expires on June 29.

"Funds are already rolling out of some of their long positions into nearby August to meet the first comedown deadline," the trader said. "That, along with cash unraveling recently, is putting extra pressure on June."

Joe Kropf, analyst with Kropf & Love Consulting, expects futures to rebound slightly after the holiday amid the prospect of grills firing up during spring. The meat industry has always counted on grilling season, but soggy weather and extreme heat can put a damper on outdoor grilling plans, he said.

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