Cattle futures jumped on Friday after beef packers paid sharply higher prices in the cash market.
With packer margins per animal well into triple digits, feedyards have raised asking prices for their cattle despite a tendency to slump at this time of year. That had hedge funds and money managers pouring into the futures trade, analysts said, as they took advantage of the heavy discount to cash to buy up contracts.
Continue Reading Below
The gains were "amazing," said Craig Turner, a senior broker at Daniels Trading in Chicago. "We're getting pretty close to the cash prices."
Live cattle futures for June delivery rose 3.4 cents, or 2.7%, at the Chicago Mercantile Exchange to $1.30825 a pound on Friday, after hitting their upper limit on Thursday. Feeder cattle futures also rose.
More than 100,000 cattle traded in the cash market on Thursday for an average of $1.36 a pound, compared with $1.33 a week earlier. Feedyards have successfully been able to keep market-ready supply light by selling their cattle at lower weights, giving them more freedom to negotiate with packers. Wide processing margins, which were at $161.90 a head on Friday, according to the HedgersEdge index, have in turn given packers the cash to meet those higher asking prices.
A government ban on cattle slaughter in India helped push up global prices and encouraged fund activity in the futures trade, analysts said. Though American grain-fed beef doesn't directly substitute cheaper Indian options like water buffalo beef in the export market, it could have a knock-on effect on broader demand.
Hog contracts were mixed as traders took profits on a recent rally, though momentum from the cattle market helped carry front-month CME June lean hog futures up 0.3 cents, or 0.4%, to 81.225 cents a pound. Later-month contracts were mixed.
Unlike in the cattle market, hog futures are higher than cash prices, which were at 74.76 cents a pound on Thursday. That leaves futures with less leeway to continue rising, analysts said.
Write to Benjamin Parkin at email@example.com
(END) Dow Jones Newswires
June 02, 2017 15:30 ET (19:30 GMT)