Cattle surge most in six months on supply concern

Cattle futures surged the most in six months on signs of shrinking animal supplies in the U.S. and higher demand for beef as Japan eased restrictions for imports.

U.S. feedlots bought 0.5% fewer cattle in December compared with a year earlier, the Department of Agriculture said after the close of regular trading on Jan. 25, surprising analysts who forecast an increase. Japan will allow U.S. imports of beef from animals less than 30 months of age under an accord effective Feb. 1, the U.S. government said in a statement.

The U.S. Meat Export Federation has forecast that beef shipments will climb to a record this year. Output in the U.S., the world’s largest producer, will drop to a nine-year low after the most-severe drought since the 1930s spurred ranchers to cull animals. The herd dropped to 97.8 million head on July 1, the smallest for the date in at least 39 years, the latest government data show.

“Supplies will gradually continue to tighten,” Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said in a telephone interview. Demand will also climb “with the Japanese business expected to grow,” he said.

Cattle futures for April delivery rose 2% to $1.33325 a pound at 12:27 p.m. on the Chicago Mercantile Exchange. A close at the price would mark the biggest gain for a most-active contract since July 18.

Mad Cow

Japan was the biggest buyer of U.S. beef before a case of mad cow disease was discovered in Washington state in 2003. The Asian nation said last week that it would ease restrictions on U.S. beef in February. Japan also reduced constraints on beef from Canada and France and veal from the Netherlands.

Japan’s moves signal tightening global supplies of beef, Dennis Smith, an analyst at Archer Financial Services in Chicago, said in a telephone interview.

Increased sales to Japan may add 4 cents to 7 cents a pound to the price of U.S. wholesale beef starting as early as April, Rich Nelson, the chief strategist at Allendale Inc. in Crystal Lake, Ill., said today in a telephone interview. The wholesale cost fell 1.3% to $1.8744 a pound last week, USDA data show.

Feedlots sold 1.745 million animals to meatpackers last month, down 1.7% from a year earlier, the USDA said. Analysts projected a 6.6% drop, on average. The sales figures are a bullish signal for demand, Smith said.

U.S. beef production will total 11.273 million metric tons (24.9 billion pounds) this year, the lowest since 2004 and down 3.7% from a year earlier, the government has forecast.

Feeder-cattle futures for March settlement rose 1.3% to $1.499 a pound on the CME.

Hog futures for April settlement advanced 0.2% to 89.1 cents a pound. Through Jan. 25, the price climbed 3.7% this month.

Bloomberg News

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