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.”
