U.S. live cattle futures on Tuesday recovered some of the ground lost on Monday to risk-off trading, drawing support from steadily rising wholesale beef prices, said analysts and traders.
December Chicago Mercantile Exchange (CME) live cattle also returned above the key 200- and 20-day moving average support levels of 128.63 and 128.82 cents, triggering fund buying (all figures US$).
October live cattle closed 0.9 cent higher at 126.4 cents. December ended at 128.875 cents, up 0.575 cent.
The price for wholesale choice beef on Tuesday was $194.27 per hundredweight (cwt), up $1.22 from Monday and select cuts were $1.54 higher at $184, according to the U.S. Department of Agriculture.
Beef prices at wholesale rose as packers passed on higher cattle costs to retailers. Grocers are also buying product at current prices to avoid potential price hikes later.
Investors are pricing in a cash cattle trade possibly in line with last week at $126-$127/cwt.
"The cash story on the bull side is that supplies are going to seasonally tighten from here, but packers are going to resist because of their margin situation," said U.S. Commodities analyst Don Roose.
HedgersEdge.com estimated the average beef packer margin for Tuesday at negative $33.55 per head, compared with negative $38.95 on Monday and negative $18.50 on Sept. 11.
Spot September CME feeder cattle ended down 0.05 cent/cwt to 145.275 cents as longs exited the contract before it expires on Sept. 27.
Most-actively traded October closed up 0.375 cent at 147.375 cents, pulled up by gains in the live cattle and cash feeder cattle markets.
Traders also cited lower corn prices, easing input costs for cattle feedyards.
CME hogs took their cue from the turnaround in cash prices, a sign to some that the seasonal drop in hog prices has ended, a trader said.
But, others argue the brisk slaughter pace continued to reflect plentiful supplies that could again bring down cash values.
USDA quoted the average hog price in the most-watched Iowa/Minnesota market at $66.60, up $1.38 from Monday. It was the first time prices there rose two consecutive days since mid-August.
October closed up 0.725 cent to 74.1 cents and December ended at 74.2 cents, up 0.85 cents.
Packers so far this week processed 871,000 hogs, down 2,000 from last week but 20,000 more than during the same period a year earlier, according to USDA estimates.
Hog farmers rushed more hogs to market as the worst drought in more than a half century devastated fields and drove feed grain costs to all-time highs.
And the onset of cooler weather is conducive for hog weight gains, adding more pork tonnage to the retail marketplace.
USDA pegged the wholesale pork price on Tuesday at $76.42, down $1.37 from Monday.
— Theopolis Waters writes for Reuters from Chicago.