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Cattle futures surge on Japan import news

07/18/2012 @ 3:38pm

U.S. livestock futures soared on Wednesday as signs of looser beef-import restrictions by Japan helped spark broad gains across markets which had become very ripe for a rally.

Traders at the Chicago Mercantile Exchange seized on reports from Tuesday suggesting Japan could widen its doorway for U.S. beef shipments as early as November. The associated rise in futures quickly led to sharper gains across all futures that had fallen sharply in recent weeks due to spreading drought conditions in the U.S., spiking feed costs and slowing meat demand.

Feeder-cattle closed up by their 3-cent exchange-imposed limit for daily price movements, marking a partial rebound from a disastrous four weeks during which feeder-cattle futures lost 17% of their value. August feeder cattle closed up 2.2% to $1.372 a pound. An ongoing rally in corn futures, tied to a devastating drought in the corn belt, has depressed demand for young animals at feed yards, which fatten cattle with corn before selling them onto slaughterhouses.

Live-cattle futures closed up 2.3% to $1.1807 a pound after touching a one-week high. The gains across both cattle complexes spread to lean-hog futures, which jumped 3% to 92.62 cents a pound.

The sharp rally across all livestock futures confounded some traders and analysts, who pointed out that the reports of looser restrictions in Japan first surfaced on Tuesday during trading. Still, the reports essentially touched a flame to markets ready for sharp gains.

Traders with short positions had been milking profits from recent declines for weeks as an unyielding heat wave and spreading drought conditions rippled effects throughout the meat-supply chain, sending feed costs soaring and forcing farmers to urgently sell off stressed animals. The heat wave also depressed consumer meat demand just as more animals came to slaughter.

Some brokers said clients had been eager to cover short positions as soon as they saw signs that the recent selloff may be over. The sharp gains held even after corn futures, which were stable in early-session trading, rallied later in the session to close up 2% to $7.95 a bushel at the Chicago Board of Trade.

Cash-cattle markets were quiet Wednesday following light sales in Texas and Kansas and more active sales in Nebraska Tuesday. The bulk of the week's trading had been completed before a sharp rally occurred in live and feeder cattle futures which stifled selling interest among cattle owners unless they could get higher prices.

The latest asking prices were reported at $1.15 a pound in Texas and Kansas following Tuesday's sales at mostly $1.13 a pound. Sales prices in Nebraska Tuesday were from $1.78 to $1.80 a pound dressed and $1.11 to $1.13 a pound live, down 2 to 3 cents a pound from a week ago.

Opinions held by some brokers and analysts that cash cattle and wholesale beef prices may be at or near a short-term low left cattle owners more optimistic about their chances of getting higher prices for their animals next week.

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