Tuesday November 25, 2014

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Lower feed costs fuel Chicago feeder cattle

Firm cash hog markets buoy nearby hog futures

Chicago Mercantile Exchange (CME) feeder cattle closed up 2.125 cents per pound or 1.5 per cent higher on Monday, notching a one-month high triggered by plunging corn futures prices following a bearish government corn stocks report, traders said.

"It's all because of corn... corn is down 70 to 80 cents from where it was a week ago, so it's a whole new ballgame," said Jim Clarkson, analyst for A+A Trading Inc. (all figures US$).

Traders said the widely followed cash feeder cattle auction in Oklahoma City reported feeders trading $2 to $4 per hundredweight (cwt) higher on Monday.

The U.S. Department of Agriculture's (USDA) quarterly stocks report released on Thursday showed much larger stockpiles of corn in the United States than the trade was expecting.

More feed could lower input costs for cattle feedlot operators, boosting demand for young cattle to be placed on feed and help turn around a long streak of unprofitability in the cattle feeding business.

"This (report) was a blessing for cattle feeders," said K+S Financials analyst Jack Salzsieder.

Chicago Board of Trade (CBOT) corn futures plunged their daily 40 cents per bushel trading limit on Thursday and fell further to a nine-month low on Monday in a bearish reaction to the highly sensitive government report.

CME feeder cattle futures for April delivery closed up 2.125 cents/lb. at 145.525 cents/lb. May was up 2.6 cents/lb. at 147.675 cents/lb.

David Hales of Hales Cattle Letter said weak live cattle were keeping a lid on gains in feeders. He said poor margins and dry pasture conditions may force cattle producers to sell off herds.

"It's so dry that people are concerned about March placements. March placements are probably going to be as big as last year," he said, referring to the big number of cattle placed in feedlots a year ago.

Live cattle futures closed weak but were underpinned by the strong rally in cash cattle markets late last week.

"There is nothing really significant here... just follow-through from Thursday," said Dennis Smith, a broker for Archer Financial.

Fed cattle traded $3-$4 higher in Kansas on Thursday at $128-$129/cwt. and fed cattle in Texas traded $2 higher at $127/cwt.

USDA's boxed beef report on Monday showed choice beef up 73 cents/cwt at $189.78 and select was down 36 cents/cwt at $188.02.

CME live cattle for April delivery were down 0.15 cent/lb. at 128.75 cents/lb. June was down 0.275 cent/lb. at 124.1.

Fewer cattle were available for sale last week which supported cash prices, said traders. Processors are gearing up for spring grilling as temperatures moderate across the country, they said.

Lean hogs up as cash rises

Lean hog futures rose in response to higher cash hog markets but gains were slowed by the release on Thursday of a government report that showed the potential for more hogs to be marketed than some in the trade were expecting.

However, analysts said the report was not a shocker.

"I didn't see any big surprises in the hog report and cash hogs were up, so the cash market didn't react to the inventory report," Smith said.

Cash hogs in the U.S. Midwest traded steady to $1/cwt higher on Monday amid seasonal tightening supplies and the number of U.S. hogs slaughtered on Monday was estimated at a very low 290,000 head, compared with 417,000 a week ago and 412,000 a year ago.

U.S. wholesale pork trade was not fully established and trading was very slow, with light demand and light-to-moderate offerings.

"Hogs opened lower on the hog and pig report which was a little negative but they turned up. Cattle gains (feeder cattle) may have helped hogs," Clarkson said.

USDA on Thursday showed all hogs and pigs in the U.S. on March 1 at 65.911 million head, up one per cent from a year ago. The number of pigs weighing less than 50 pounds was up one per cent, but the number weighing 180 pounds and over was up two per cent from a year ago.

The U.S. hog herd in the latest quarter had modest growth from year-ago levels as producers increased production in hope for less-costly feed.

CME lean hogs for April delivery were up 0.7 cent/lb. at 81.3 cents/lb. May was up 0.45 cent/lb. at 90 cents/lb.

-- Sam Nelson reports on the CBOT markets for Reuters from Chicago. Additional reporting for Reuters by Michael Hirtzer, Alyce Hinton and Theopolis Waters in Chicago.

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