U.S. live cattle futures rose for a third straight day on Tuesday as wholesale beef prices climbed, fueling optimism for cattle prices in the cash market, traders and analysts said.
Chicago Mercantile Exchange (CME) spot October live cattle cleared the 100- and 20-day moving averages of 124.05 and 124.46 cents, igniting fund buying and bullish spreading (all figures US$).
Spot October closed 1.35 cents per pound higher, at 124.7 cents. Most-actively traded December settled up 0.325 cent at 126.725 cents.
Some market watchers expressed surprise at the strength in live cattle even as Wall Street equities sank due to worries about third-quarter corporate earnings.
"Cattle will follow the stock market if it has no place to go fundamentally. They have somewhere to go this week," said Oak Investment Group president Joe Ocrant.
The price for choice beef at wholesale Tuesday morning was $191.71 per hundredweight (cwt), $1.14 higher than on Monday and select rose $1.51 to $177.93, according to U.S. Department of Agriculture estimates.
To recoup lost margins, packers last week reduced slaughter rates, making less fresh beef available for grocers, a trader said.
HedgersEdge.com estimated the average beef packer margin for Tuesday at negative $37.50 per head, compared with negative $43.60 on Monday and negative $44.95 for Oct. 2.
Spot October led advances as funds and speculative buyers ventured into the contract after a firm accepted the 24 deliveries reported by the CME late on Monday.
Investors now await the sale of cash cattle that some expected could fetch at least steady prices with last week given tight supplies, strong wholesale beef values and futures’ recent upswing.
There were no cash cattle bids or asking prices reported. Cash cattle last week traded at $124/cwt.
Feeder cattle futures ended mixed with thinly-traded spot October down 0.125 cent/lb. to 144.7 cents, weighed by its premium to CME’s feeder cattle index at 143.82 cents.
Most-actively traded November ended up 0.4 cent to 146.7 cents, drawing support from the higher live cattle market and technical buying.
"Incredibly huge kill"
Expectations that packers may continue to raise bids for cash hogs in the near term motivated spot October CME hog buyers, while a potential seasonal bump in hog numbers pressured December, traders and analysts said.
Lightly-traded spot October hogs closed up 0.425 cent/lb. to 81.9 cents. Most-actively traded December ended down 0.075 cent, at 76.8 cents.
Still, some see packers balking soon at spending more for cash hogs as their margins tighten and supplies remain plentiful.
USDA estimated the hog slaughter from Tuesday to Monday at 869,000 head, up 6,000 from a week earlier and 19,000 more than the same period a year ago.
The average pork packer margin for Tuesday was estimated at positive $2.85 per head, versus positive $3.20 on Monday and positive $3.15 for Oct. 2.
Meanwhile, speculative buyers waded into the deep deferred months. They contend fewer hogs will be available next year after hog farmers hurried animals to market, as the worst drought in more than 50 years drove feed prices to record highs.
"The incredibly huge kill that the industry is putting up right now may be translating in the back months that there will be a little bit of a shortage," said independent hog futures
trader James Burns.
— Theopolis Waters writes for Reuters from Chicago.