Written by John Detrixhe
MEDILL
16/01/2008
Cattle futures continued to sink Wednesday, and brokers expect the decline to continue, at least for the near term.
February live cattle futures skidded .80 cents per pound, closing Wednesday at 90 cents. During the last two weeks cattle futures have dropped a little more than 6 cents, or nearly 7 percent.
“Obviously we’re being driven down by grains,” said Gary Lark, an independent trader in Chicago at the CME Group Inc. “Cattle tried to rally on internal news, but it couldn’t sustain and it came down under its own weight.”
Cattle futures tend to be closely linked to grain prices, since grains are used in cattle feed. When feed costs increase, ranchers are forced to push their cattle onto the market to cut operating costs. The increased supply thereby reduces prices and further eats into profits.
Corn prices in particular have soared recently and have been a major focus of commodities markets.
“Predominantly what’s driving [cattle futures] down is corn,” said Mike Leheska, a commodities trader at Texas-based Amarillo Brokerage Co. “Every pound of feed we buy to put a pound of meat on cattle, we’re losing money.”
March corn futures closed Wednesday at $5.03 per bushel, down 1 percent from Tuesday’s close. But prices have surged 41 percent over the past three months from the Oct. 8 close of $3.56 per bushel.Chip Love, a rancher in Marfa, Texas, said high fuel costs have also taken their toll on profits.
"Since we're so rural, we have to burn a lot of fuel to bring feed out here," Love said. "Our input costs have definitely gone up."
Lark also said weakness in the overall economy has put pressure on commodity prices. Stocks were mixed Wednesday, after a report on the Consumer Price Index showed the greatest inflation leap in 2007 in nearly two decades.
The news seemed to be balanced by the Federal Reserve’s so-called Beige Book survey of regional economic conditions indicating slight economic growth at the end of 2007.
The question on the minds of cattle brokers is how long the weakness in cattle futures will last.
Citing low numbers of young cattle, or feeder cattle,that will eventually be available for slaughter, Leheska predicted that cattle supplies would soon be pressured, thereby giving a lift to prices of cattle futures.
“We’re in an extremely negative situation, but it’s not going to last much longer. If it takes a few weeks, or if it takes a month or two, it’s still bullish long term,” Leheska said.
Love agreed with the optimistic prospects for cattle futures.
"Nobody brags about the piece of chicken they had last night," Love said.
