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Cattle futures slip after touching record highs

01/13/2014 @ 2:17pm

U.S. cattle futures ended mostly lower Monday, pressured by slightly higher corn prices following a federal supply report that unexpectedly cut the government's estimate for last year's U.S. production of the grain.

The feeder-cattle futures market led the livestock complex lower, as the price of light-weight cattle is closely tied to the costs of feeding them to their final slaughter weight.

Feeder-cattle futures for January slipped 0.82 cent, or 0.5%, to $1.6782 a pound at the Chicago Mercantile Exchange. March feeder-cattle fell 1.17 cents, or 0.7%, to $1.6647 a pound.

February live cattle also declined, slipping 0.1 cent, or 0.1%, to $1.3660 a pound.

A nearly 5% jump in projected corn prices over the past two trading sessions has weighed on cattle futures, as many market watchers expected the U.S. Department of Agriculture to raise estimates for the total crop output on Friday. Instead, the agency lowered its estimate to 13.925 billion bushels, compared with the 14.05 billion bushels expected by analysts.

The prices feedyard operators and cattle owners garner for fattened, slaughter ready cattle--which have soared to record highs in the cash markets over the past few weeks--must be higher than the input costs for young, lightweight cattle and the cost of feeding those animals, in order for them to make a profit. Margins were thin or negative for many cattle feeders for years before feed grain costs tumbled after 2013's historically large harvest of both corn and soybeans.

"Fundamentally the market for feeder-cattle is stretched. To buy feeders at or near [futures] board prices, you're counting on everything working out perfectly," said Trey Warnock, an analyst with Amarillo Brokerage in Texas. "With corn prices up, that certainly hurts that deal for feeders," Mr. Warnock added.

New record-high prices paid for cattle in the cash markets last week and the third consecutive day of all-time highs for choice- and select-grade beef at the wholesale level helped curb selling in the live-cattle market.

Wholesale choice-grade beef prices at midday surged $1.76 per hundred pounds to $216.74, according to the USDA, breaking the new records set Friday and Thursday. The previous record of $211.37 per hundredweight was established May 23. Select-grade prices climbed $2.01 per hundred pounds to $213.59, also an all-time high. The total load count was 48.

Hog futures also ended the day lower, pressured by selling across the livestock complex. February hogs declined 0.45 cent, or 0.5%, to 85.37 cents a pound, after falling 1.0% over the past week.


Write to Kelsey Gee at kelsey.gee@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
January 13, 2014 15:02 ET (20:02 GMT)
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