Cattle futures fell sharply on Monday as traders bet that light demand from meat-packers could signal the beginning of a seasonal downturn.
Light demand kept the cattle trade slow last week, the U.S. Department of Agriculture said on Monday morning. Average cattle weights inched higher, expanding supply. That, combined with a failure to break through last week's recent highs, helped prompt a selloff in the futures market.
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Large herds on-feed mean any slowdown in the cash trade could lead to a quick run-up in the number of available cattle, said Ted Seifried, chief market strategist at Chicago-based risk management firm Zaner Group. "If weights do start to come up by a halfway decent amount, then we're really increasing the supply," he said.
Live cattle futures for June delivery fell 2.2% to $1.2835 a pound at the Chicago Mercantile Exchange on Monday, erasing last week's gains to close at the lowest point since June 1. CME June feeder cattle futures fell 1.7% to $1.5155 a pound, despite a steep fall in prices for the corn needed to fatten the cattle.
Cattle futures could be vulnerable to a correction if speculative investors start to pull out of widely held optimistic bets, said Troy Vetterkind of Vetterkind Cattle Brokerage in Thorp, Wis. Data released by the Commodity Futures Trading Commission on Friday showed hedge funds cutting by 2% bets that live cattle futures would rise, though they remained at a large net long position of 129,787 futures and options.
"There is a lot of [speculative] length in the market that will be looking to hit the exit doors if we begin to break down technically," Mr. Vetterkind said.
But other signs of demand in the cattle market continued strong. Wholesale beef prices were sharply higher as of Monday morning, according to the USDA. A pound of beef rose 1.36 cents to $2.5227, a fresh multimonth high. Packer margins also swelled to $158.30 a head from $140 on Friday, according to the HedgersEdge index.
Hog futures also closed lower, though they rebounded from lows earlier in Monday's session. CME June lean hog contracts fell 0.6% to 81.975 cents a pound.
Analysts said a fall in slaughter numbers late last week could signal a short-term dip in demand. Futures have traded in a tight band in recent weeks, as traders consolidate prices after a rally that started in late April.
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(END) Dow Jones Newswires
June 12, 2017 15:38 ET (19:38 GMT)