Cattle futures go for tumble

Reading Time: 2 minutes

Published: April 11, 2002

Beef cattle futures prices have been shot down, but no smoking gun can

be seen.

Feeder and live cattle futures market prices continued to fall April 8,

in a continuation of last week’s tumble downward. April futures are

nine percent lower for the month showing the largest short-term drop

since January1998.

April live cattle futures on the Chicago Mercantile Exchange had been

trading steady or slightly lower for the past 30 days.

April 3 closed down 60 cents US per hundredweight. The opening bell on

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April 4 brought traders to the floor with large numbers of sell orders

for futures contracts stretching out through December as larger holders

sold in an effort to protect themselves from increased losses.

Buyers were not eager to buy contracts that had been trading at a

premium to cash markets for live animals. The results were sharply

lower prices for April futures contracts.

April live contracts were the hardest hit with prices dropping $3.10 US

per cwt. over April 4-5. Market limiters stopped downward trading

several times and by April 8, finished $4.60 lower than April 3.

The rest of the year fell as well, finishing an average 10 percent

lower over last month.

Industry participants said several negative factors drove down prices.

Larry Hicks of Englewood, Colorado operates Cattlehedging.com, a cattle

industry risk management service for producers and traders.

“It wasn’t one thing. No smoking gun we can look to. Just a bunch of

terrible news in the beef industry that seems to have come together to

finally push prices lower,” he said.

Hicks and other market analysts cited factors including hog prices that

have been falling for months, the Nebraska foot-and-mouth disease

rumour, tuberculosis in Texas, fast food chain McDonalds testing

foreign imported beef for the first time, poor profits in the cattle

feeding business, poor cutout prices for beef brought down by lower hog

cutout prices, cheaper poultry dark meat supplies, lower demand for

wieners and a wholesale beef market that reduced prices to stimulate

sales.

Herb Lock of Edmonton works in the industry and said despite the

futures meltdown, most livestock producers may be OK.

“The cash (live cattle market) is down a little, but right now it is

about a dollar above the futures. Cash is what most of them live with

… but this kind of thing has a tendency to hurt cash prices in months

that follow.”

Cash markets may be higher priced than futures until “some good news

comes along that coaxes some new (futures contract) buyers back into

the market,” said Lock.

The sudden drop in futures prices came a surprise to traders as the

“fundamentals looked good,” said Lock.

“Packer demand was fairly steady and supplies are tight. Canadian

cattle were moving south. All was well and still is, really. Because of

that producers that are managing risk can look for short rallies in the

futures price. One thing is sure, it’s going to be volatile out there

for a while.”

Hicks agreed.

“Look for the sharp rallies. Buyers will need cattle to slaughter.

Packers will be looking to manage their future price risks. Producers

will see some lower prices but they won’t be selling into this

market….They have the cattle,” he said.

Lock said cattle feeders may be able to make some money from the drop.

“If they can buy feeder cattle at these lower prices, they could make

some money back down the road, provided they have any money left to buy

cattle.”

About the author

Michael Raine

Managing Editor, Saskatoon newsroom

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