Live Cattle A Bright Spot For 2015: Rabobank

As index funds fret about declining crude oil prices, the economic effect it might have and how that plays into their index calculations, live cattle present a possible bright spot for 2015 portfolios.

Rabobank said Tuesday that live cattle are poised for further gains next year to record-highs.  Soybean futures were set to take the biggest fall.

The bank said live cattle’s outlook was backed by tight supply and continued strong demand as lower feed prices and better grass availability encourage herd rebuilding, which reduces heifer feeding for slaughter.  US beef production was expected to decline 2% to 3% next year after falling 5% this year.

The bank did not give a price target for live cattle futures, but adding 2% to 3% to the current record high of $171.97 per cwt gives a range of $175.41 to $177.13.

Besides the loss of potential slaughter cattle from increased heifer retention, Rabobank economists predicted reduced imports of feeder cattle and beef from Canada and Mexico.

 

LARGEST GAINS SEEN IN FIRST HALF

 

The largest gains in live cattle prices likely will come in the first half of the year, the bank said.  The second half was expected to show a more traditional seasonal pattern.

The bank didn’t say so, but by then, increased production from the pork and poultry industries could put a lid on further live cattle price gains.  The bank did say that pork prices were expected to come under pressure as the US pork industry recovers.

The US sow herd has expanded by nearly 2%, and farrowing from September to February is up 4% from the 2013/14 period.

Live cattle futures Tuesday ended lower, with the nearby Dec contract giving back Monday’s gains.  Traders cited concerns about beef demand as the holiday rush in the wholesale market winds down.  Feeder cattle also were beset with long profit taking, which weakened live cattle futures.

The CME Feeder Cattle Index for the seven days ended Monday was up a whopping $3.49 per cwt at $243.94, well above the Jan futures contract’s settlement Tuesday of $235.55.

 

CASH CATTLE MARKETS REMAIN QUIET

 

Meanwhile, cash cattle markets remain quiet this morning with no bids from packer buyers reported and asking prices near $175 per cwt on a live basis and $270 on a dressed basis.

Cattle traded last week at $172 to $173 live and $267 to $268 dressed.

Some sources said this week’s larger showlists could inhibit further price gains in cash cattle, particularly if packers already are seeing a seasonal buying-interest slip in ribs and loins.

Beef movement into the spot market has been light this week, as has the rate of slaughter.  For the week to date, the USDA listed slaughter at 222,000 head, down 10,000, or 4.31%.  This week’s accumulated kill also is 16,000 head, or 6.72%, lower than the 238,000 killed in the same week a year ago.

Other trade sources said they expected higher prices in cash cattle markets, saying there is no sign yet of beef buying interest shifting away from holiday fare just yet.

Some also say that feedlot showlist estimates are mixed, showing fewer cattle being presented to packer buyers in Nebraska, and that this could underpin cash cattle prices, keeping them steady for a third straight week or even pushing them higher.

The USDA reported boxed beef prices Tuesday were lower.  Choice was down $1.12 per cwt to $256.36, and select was off by $1.68 to $243.66.  The choice/select spread widened to $12.70, and there were 105 loads of fabricated product sold into the spot market.