Cattle futures soared to their upper limit on Thursday as traders looked to close the discount to cash-market prices.
The U.S. Department of Agriculture said that beef packers bought live cattle in southern states for as much as $1.37 a pound, as well as $1.36 live and $2.16 dressed in Nebraska and Iowa.
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That was a steep increase from the previous week at a time when cash prices tend to trend lower, helping propel futures upward. Live cattle futures for June delivery rose 3 cents, or 2.4%, to $1.27425 a pound at the Chicago Mercantile Exchange, closing at their upper daily limit. August feeder cattle futures rose 4 1/2 cents, or 3%, to $1.57075 a pound, also closing limit-up.
"A major basis correction is under way" as futures gain ground on the sharply higher cash market, said Dennis Smith, a broker at Archer Financial Services in Chicago.
Packer margins have soared as beef prices remain high after a Memorial Day weekend boost. That has allowed packers to spend more on the cash market, though the USDA said trade in some regions was still muted as they resisted meeting asking prices.
The HedgersEdge processing margin index, which was negative around three weeks ago, rose to $163.25 a head on Thursday.
Troy Vetterkind, of Vetterkind Cattle Brokerage in Wisconsin, said that a break through recent resistance levels of around $1.25 a pound, on the back of higher cash prices, could give June live cattle futures further room for gains as they claw back toward contract highs of $1.35.
Hog futures, however, slumped as traders swapped bullish bets from that market into cattle. In contrast to live cattle, lean hog futures are at a premium to cash prices, leading some analysts to say that the contracts are oversold.
CME June lean hogs fell 1 cent, or 1.2% to 80.925 cents a pound on Thursday.
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(END) Dow Jones Newswires
June 01, 2017 15:46 ET (19:46 GMT)