Record-high cash cattle
U.S. live cattle futures ticked higher on Tuesday following record-high prices in cash cattle markets on Friday.
Cattle for February delivery closed up 0.2% at $1.289 a pound in trading at the Chicago Mercantile Exchange, an all-time record intraday high for the spot contract, of soonest-expiring futures. April cattle closed up 0.22 cent, or 0.2%, to $1.3112 a pound.
Cattle in cash markets at the end of last week traded as high as $1.295 a pound, a new all-time record and just shy of $1.30 a pound, an all but unthinkable price for cattle just a few years ago. Prices for cattle have touched records in the last several months due to a combination of strong beef demand, tight supplies following a drought in the southern plains and excess slaughter capacity among meat processors.
Gains were limited following the record cash prices as some futures traders took profits. Other investors repositioned books to reflect growing fears that simmering geopolitical tension in the Middle East could lead to a spike in oil prices. High gas prices can be bearish for the beef business if they force consumers to switch to lower-priced meats.
Steadily climbing beef prices have helped underpin the rally in futures and cash markets. Beef prices have been steadily rebounding in recent weeks following a cut in meat production by beef packers, a move that has tightened inventories and helped processors narrow their negative profit margin estimates.
The U.S. Department of Agriculture reported midday choice boxed beef prices up 1.66 cents per hundredweight at $193.47, and select up $2.39 at $190.77 a hundred pounds. Any further rises in select-beef prices will result in a new all-time high for that grade. Total sales were reported at 88 loads.
Choice-grade beef prices are nearing $1.95 a pound, a level that historically has led to evidence of price shock among consumers, analysts say. That means investors will be watching to see whether retailers, who are nearing the traditional start to the spring grilling season, will continue paying elevated prices.
Cattle feeders are asking higher prices for their animals this week and are encouraged by smaller show lists, or official for-sale inventories, along with early-week strength in wholesale beef prices.
Some traders continue to point to warning signs for cattle prices in coming weeks and months. Profit margin estimates at beef processors remain in negative territory, a dynamic that has led packers to cut meat production in recent months, shrinking their demand for cattle.
The latest HedgersEdge packer margin index was minus $40.95 per head, compared with minus $13.70 the previous day. This is an estimate of packer returns on cattle slaughtered and processed expressed in the form of an index.
The average weight of slaughtered cattle, meanwhile, continues to rise. One potential cause of the steadily climbing size of cattle is a prolonged spell of mild winter weather, which makes for highly efficient cattle-growing conditions. But rising weights can also be a sign that cattle owners are beginning to face a backlog of inventory--a trend, if true, that could eventually lead to forced sales by stressed cattle feeders.