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CME update: live cattle futures inch up, following climbing beef prices

13 May 2020

US live cattle futures closed higher on 12 May, with short-term contracts rising by the daily maximum.

Reuters reports that the rise is led by soaring wholesale beef prices and expectations that US beef production would drop. Traders report that this dynamic spurred speculative buying.

Chicago Mercantile Exchange (CME) June live cattle futures settled up 4.5 cents, the expanded daily limit, at 97.175 cents per pound, approaching Friday's six-week high.

CME August live cattle finished up 4.5 cents at 101.700 cents, while August feeder cattle settled up 3.075 cents at 135.750 cents.

After the CME close, the exchange said it would raise the margins to trade live cattle futures by 4.2 percent, effective after Wednesday's session.

As US meat packing plants contend with labour shortages from the COVID-19 pandemic, CME cattle futures have been volatile as traders weigh support from soaring meat prices against pressure from huge bottlenecks of cattle in the country.

Beef prices were of particular concern on 12 May. The choice boxed beef cutout rose on Tuesday afternoon to $475.39 per cwt, up $6.81 from Monday and up about $46 from a week ago, according to the USDA.

"The market is following the cutout. The cutout is ruling everything," said Don Roose, president of Iowa-based US Commodities.

In a monthly supply/demand report on Tuesday, the USDA lowered its forecast of US 2020 beef production to 25.76 billion pounds, down 1.68 billion from its April figure.

"They took an axe to the production estimates for 2020, which is not surprising," said Altin Kalo, agricultural economist for Steiner Consulting.

Still, a large supply of cattle awaiting slaughter looms over the futures market. USDA projected that prices for steers would average $99 to $100 per cwt for the rest of 2020, below the price of CME August live cattle futures and deferred months.

"What they are saying is, you are going to have bigger numbers (of animals) coming at us," Roose said.

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