Chicago Mercantile Exchange (CME) live cattle futures fell on Wednesday on trade ideas that the top of cash markets are set following a series of gains to record highs in the wholesale beef market, traders and analysts said.
"It's a wait-and-see game to see what cash does. Beef is at record highs, but some people are afraid it's getting a bit toppy given the seasonal supply buildup and grocers getting close to having all the product they need for Memorial Day," a trader said.
Wholesale beef carcass prices leaped $2.09 per hundredweight (cwt) to a record high of $208.18 on Wednesday on lower supplies and increased demand before the traditional U.S. Memorial Day grilling season on the final weekend of May (all figures US$).
CME live cattle futures for June delivery were down 0.775 cent/lb., at 120 cents. August cattle were down 0.55 cent/lb., at 119.85 cents.
"Part of the day's losses can be tied to funds pressing the market," said Don Roose, analyst for U.S. Commodities in Des Moines, Iowa. "But declining open interest suggests investors who were caught long the market are liquidating those positions," he said.
Some position-squaring and long-liquidation was noted ahead of the release at 2 p.m. CT of the U.S. Department of Agriculture's May cattle on feed report.
An average of analysts' estimated in a Reuters poll pegged the number on feed on May 1 at 10.677 million, down nearly four per cent from a year ago. The number of young cattle placed in feedlots in April was pegged at 1.72 million, up 13.1 per cent from a year ago.
Analysts said the number placed on feed jumped from a year ago due to lower costs to feed cattle and higher cash cattle prices.
Cattle futures found some underpinning from fairly lucrative and improving profits for beef packers.
Estimated margins for U.S. beef packing companies were a positive $51.15 per head on Wednesday, up from $40.85 per head on Tuesday and up from a negative $9.80 per head a week ago, according to Denver-based livestock marketing advisory service HedgersEdge.com LLC.
Cash bids in the U.S. Plains surfaced at $124/cwt against $127-128 asking prices from feedlots. Cash-basis cattle last week moved at mostly $126 to $127/cwt.
Feeder cattle futures also turned down in step with the slip in cattle and on profit-taking and liquidation ahead of Friday's cattle on feed report.
CME May feeder cattle futures were down 0.425 cent/lb. at 135.075 cents. August was down 1.125 at 145.3.
Lean hog futures turned down on waning packer profit margins that led to prospects packers would begin cutting slaughter rates and lower their bid price for live animals destined for slaughter.
Lean hog futures for June delivery were down 0.675 cent/lb. at 91.925 cents/lb. July hogs were down 0.55, at 91.85.
"The hog market had a seasonal push up, usually because of a drop in supplies and increased cutout due to pent-up grilling demand. But there is concern negative packer margins could result in lower cash prices at some point," said Roose.
Estimated profit margins for U.S. pork packing companies on Wednesday were a negative $6.30 per head, down from a negative $5.55 on Tuesday but up from a minus $11.20 a week ago, according to HedgersEdge.
Wholesale pork carcasses were up 91 cents/cwt on Wednesday at $92.20 and above the five-day average at $90.74.
U.S. Midwest cash hogs were steady and some packers cut back on kill hours as most had supplies to cover plant outages ahead of the U.S. Memorial Day holiday, dealers said.
-- Sam Nelson covers ag commodity markets for Reuters in Chicago. Additional reporting for Reuters by Theopolis Waters and Alyce Hinton in Chicago.