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

Live cattle lying down

Hot Commodities

December live cattle made a double-top in July and prices have steadily worked their way back down. With good supply numbers in September, analysts are pointing to demand and other outside factors for pulling prices down.

“We’re in a consolidation phase because of polar opposite factors,” says Robert Chesler, account executive at FC Stone. “On the one hand, we still have long-term bullish fundamentals with very low placement numbers. The counterbalance to that is very bearish outside markets. Those markets will lead to concerns about beef demand.” Looking forward, he says demand will continue to drive price. “Look at the spread differentials between beef, chicken and pork to see what it does. Demand is going to be the key factor,” he says. Chesler puts support for December live cattle at $116 and if that is broken, $113. He sees resistance at $125.

John Harrington, livestock analyst at Telvent DTN, agrees that demand is the primary cause of the earlier rally. “You can’t credit short supplies for prices being 15% [higher than] a year ago, it’s mostly because of demand. As good as demand is in the face of pretty significant supplies, it’s just not enough,” he says. Harrington says feed lots probably are losing $75-$100 a head right now despite historically high prices and need prices to get up to $125 to be profitable. He says $7 corn is contributing to high cattle prices. Harrington says $119 is a critical level and likely will help determine the market’s direction whether it can be overcome or not. On the downside, Harrington sees support at $115.

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