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Cattle market hits a big rock

02/12/2013 @ 11:49am

U.S. live-cattle futures are trading lower Tuesday, weighed down by protracted weakness in beef demand and poor processing margins for meatpackers.

February live-cattle futures recently were down 0.675 cent, or 0.5%, at $1.262 a pound at the Chicago Mercantile Exchange. April cattle futures, the most actively traded contract, were down 0.7 cent, or 0.5%, at $1.2965 a pound.

Prices are under pressure because retail demand remains sluggish. That is offsetting tight-supply factors. So far this week, fewer cattle are listed for sale in the U.S. than a week ago.

"There are no signs of life in the beef market," said Elaine Johnson, an analyst with brokerage CattleHedging.com in Westminster, Colo. Slaughters "were reduced last week and you're still not seeing a response on the demand side of things. Packers just can't sell the meat for what they're buying the cattle for."

Despite the smaller supplies, U.S. wholesale-beef prices recently have been stuck near multimonth lows, keeping processing margins thin or negative for meatpackers, analysts said. The poor operating margins extend to feedlot operators, which fatten beef cattle for slaughter.

Feeder-cattle prices are declining sharply. The March contract recently shed 1.3 cents, or 0.9%, to $1.435 a pound. April futures recently dropped 1.62 cents, or 1.1%, to $1.47 a pound. All other contracts are lower.

Despite the fact that nearby corn futures recently have cooled, which can forecast lower costs for feedlot operators, feeder-cattle prices remain pressured by weakening live-cattle prices, which provide a yardstick for how much money feed lots will fetch for slaughter-ready cattle.

"If you're placing cattle now at today's feeder-cattle prices, and you look out to June or August futures to calculate a break-even, I promise you they don't work," Ms. Johnson said. Feedlot operators are working to keep feeder-cattle costs down to avoid negative margins, she said.

Traders said they are keeping an eye on forecasts for winter storms in major cattle-feeding regions, which temporarily could squeeze beef supplies.

Feedyard managers in the Texas Panhandle and western Oklahoma also will be focused on the weather, as forecasts for snowfall in the region range from a few inches to as many as eight or nine inches in certain areas, according to the National Weather Service. Cattle don't gain weight as quickly in periods of inclement weather as more of the energy from the feed must be used to maintain body temperature.

In cash markets, cattle bids remain absent and may not become available until late Tuesday or more likely near midday Wednesday. Meanwhile, owners are seeking higher prices for their animals that they received last week. In Texas and Oklahoma, they are asking from $1.27 to $1.28 a pound, where cattle were priced early last week.

Analysts' predictions for prices this week range from steady to possibly a cent higher a pound on a live-weight basis depending on what wholesale-beef prices and futures markets do the balance of the week.

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