Cattle Futures Higher as Monthly Frozen Beef Stocks Fall

By Benjamin Parkin Features Dow Jones Newswires

Cattle futures rose on Monday ahead of a government report that showed shrinking beef stocks in U.S. freezers amid a recent supply pinch.

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The U.S. Department of Agriculture said that stocks of beef in cold storage at the end of April fell 1% from March and 2% from the same time last year to 458.46 million pounds. The monthly report came out after the futures markets closed.

The decrease was smaller than analysts had forecast, however, after lighter-weight cattle prompted a cattle futures rally through much of April on the back of supply concerns.

Frozen pork stocks were down 6% from the previous year at 599.112 million pounds, though they rose 50 million pounds, or 9%, from March.

The March-to-April increase was the largest in four years, said Rich Nelson of brokerage Allendale, Inc., coming as packers slaughtered well over 2 million hogs a week during that period. Mr. Nelson added that the data would likely weigh on lean hog futures in Tuesday's session.

Large hog slaughter also eased tightness in frozen pork belly stocks, which rose 66% to 34.045 million pounds in April from March. Belly stocks were nonetheless less than half of year ago levels, and a record low for April. Belly prices have fueled volatility in the hog market in recent months after stocks fell sharply earlier this year on strong demand for the fatty meat, used to make bacon.

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"We were producing a lot of bellies, they're being gobbled up," said Dan Norcini, an independent trader in Idaho. "Demand has really eaten through the supply."

Live cattle futures for June delivery rose 0.4% to $1.23925 in Monday's session at the Chicago Mercantile Exchange ahead of the report, buoyed by optimism over an agreement to reopen the Chinese market to U.S. beef imports this summer. The deal is yet to be finalized, but market participants said it had the potential to be a major boon to demand.

"It's one of the biggest developments in the cattle markets in the last ten years," said Dennis Smith, a broker at Archer Financial Services. "It was a small market when we lost it in 2003. It's not a small market anymore."

Signs of domestic demand were also strong. Cash prices continued well above futures levels, averaging at $1.34 a pound on Friday, while wholesale beef prices rose to $2.48 a pound on Monday.

CME June lean hog futures fell 0.2% to 79.35 cents a pound, turning lower after trading higher for much of the session. Underlying indicators of demand have wobbled recently, with cash prices for hogs $1 lower per 100 pounds as of Monday morning. Slaughter and meat production last week also dipped.

Write to Benjamin Parkin at benjamin.parkin@wsj.com

(END) Dow Jones Newswires

May 22, 2017 16:22 ET (20:22 GMT)