From the February 01, 2011 issue of Futures Magazine • Subscribe!

Live cattle stampeding

While the recovery seems to be happening slowly, higher food prices may make it harder to believe. This is particularly true in the live cattle market where contract highs were recently exceeded.

Live cattle made the historic highs following a bullish World Agriculture Supply and Demand Estimates (WASDE) report released on Jan. 12. "[Live cattle’s] immediate correlated market is corn, so if corn prices are running, then it’s going to cost more to feed animals. You’re not going to keep them around unless you are getting paid to do so," says Robert Chesler, account executive at FC Stone.

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The result is a lower supply forecast at only 57.8 pounds of retail meat per person for 2011, down 2.6 pounds from last year, and is the lowest since 1952. Chesler sees support on the April contract at $1.10 per pound and resistance around $1.16 to $1.17.

In addition to grain prices, international cattle markets are providing a boost. "Watch the export market. Germany had some dioxin issues, and countries tend to ban everything first and ask questions later," says Randall Cleland, principal at Tanyard Creek Capital. Consequently, China banned beef from Germany. Additionally, there has been talk that China may re-open its market to American beef for 30-month and younger cattle. Cleland puts support for the April contract at $1.11 to $1.12 per pound and sees resistance at $1.16.

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