CHICAGO, Ill. (Reuters) – The number of cattle contracted to beef plants has increased sharply in the United States.
Traders and analysts say it’s the result of higher Chicago cattle futures prices, which could keep a lid on cattle prices in the weeks ahead.
“Packers have a lot of contracted cattle to draw on,” said Jim Sauter, an independent cattle trader.
The U.S. Department of Agriculture recently reported that the number of cattle contracted by packers for delivery during April was 321,156 head, up 57 percent from 204,845 head a year earlier at that time.
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The number for May was 314,867 head, up 59 percent from 197,946 head a year ago.
Live cattle futures have been increasing since December and recently neared an 18-month high. These increases have allowed beef plants to contract cattle from producers at profitable prices.
Many of these contracted cattle will now be available for delivery to beef plants in April and May.
Jim Robb, an economist at the Livestock Marketing Information Center, said packers were paying up to $1 over the futures for contracted cattle.
“The recent run-up in the futures allowed packers to offer producers contracts that locked in a profit,” he said.
While wholesale beef prices are the highest in 19 months, sales have been slow and beef plants may use those contracted cattle to fill their slaughter needs, traders said.
The contracted cattle may prevent beef plants from having to pay higher prices for cattle in the weekly spot markets.
“There were only 606 loads (of choice and select cuts) sold last week, the lowest non-holiday meat movement in nine to 10 years,” Sauter said.
“So you have to figure that they will keep the kills low and pull their contract cattle that they have lined up starting next week.”
