U.S. livestock: Futures surge as investors snap up discounts

Chicago | Reuters — U.S. livestock futures surged on Tuesday — with live cattle futures up to their 4.5-cent expanded limit — as steep discounts in futures prices over the current cash markets wooed investors to buy back in, traders said.

Feeder cattle also jumped to their normal trading day limits, as the sector overall saw support from rallies in the energy and equities markets.

It was a sharp turn from Monday, when live cattle futures plunged to their daily trading limit as beef inventories remain robust with much of the nation’s restaurant industry shuttered because of the pandemic.

Chicago Mercantile Exchange (CME) most actively traded live cattle futures ended the day up their 4.5-cent limit at 84.8 cents/lb., while most actively traded feeder cattle futures settled up 4.5 cents at 113.8 cents/lb. (all figures US$).

Brian Hoops, senior market analyst at Midwest Marketing Solutions, said the volatility of the recent days in livestock futures was being driven in part by technical trading.

On Monday, the cattle market was “margin-call type selling,” Hoops said. “Now that has gone away, we’re seeing the market recover.”

Hoops said he expected live cattle futures could continue to rally in the coming days, as futures are still heavily discounted compared with the cash market.

“You have June futures trading at $80,” Hoops said, noting: “That’s the largest discount we’ve ever seen this time of year, compared to the cash market.”

CME most actively traded lean hog futures ended up three cents at 52.65 cents/lb.

While U.S. pork exports have grown in recent months, market hopes are waning that the United States would help restock China’s need for pork as the African swine fever outbreak devastated its hog herd, said Don Roose, president of U.S. Commodities in West Des Moines, Iowa.

“China now is trying to rebuild their herd,” said Roose, who expects U.S. sow herds to shrink at a faster rate amid the pork supplies glut. “The question everyone’s asking is, what’s the demand destruction all of this will have on the meat market going forward — and nobody knows.”

Trading limits for feeder cattle will be 6.75 cents on Wednesday, while lean hog and live cattle will be at 4.5 cents, the CME Group said.

— Reporting for Reuters by P.J. Huffstutter in Chicago; additional reporting by Christopher Walljasper in Chicago.