Corn could stem rally in feeder cattle prices

by Agrimoney.com

A further rebound in corn prices could curtail the rally in feeder cattle futures, which rose to a record high on Tuesday amid expectations of a scramble by feedlots for extra animals.

Feeder cattle - cattle ready for fattening on feedlots – touched 141.85 cents a pound in Chicago for August delivery, an all-time high for a spot contract, and extending to 13% gains over the last month.

The rally has been supercharged by expectations that weaker corn prices will encourage feedlots to take on extra animals, at a time when the pipeline of feeder cattle appears thin.

Farmers in drought-affected areas of the US South, accounting for roughly one-third of the national herd, sold cattle at lighter weights than normal because of the poor pasture conditions and, with the national herd at its smallest for decades, replacement supplies are expected to be hard to come by.

"We have a small herd anyway, and on top of that the picture has been distorted by placing cattle [on feedlots] early," Jerry Stowell, at broker Country Futures, based in Kansas state, said.

Corn factor

However, while there still looked considerable potential for feeder cattle prices to rise further, the upside could be limited by a further revival in the price of corn, a major fodder source for feedlots.

"We are bullish feeder cattle. But if corn yields come in slightly below expectations, we could see feeder cattle falter at the mid-150s [cents a pound]," Mr Stowell said.

Conversely, the prospect of a rash of fattened animals emerging from feedlots later in 2011, following the strong pace of placements of feeder cattle in the spring, has kept a lid on prices of live cattle- those ready for slaughter.

Live cattle for October shed 0.1% to 119.50 cents a pound, with those for August delivery adding 0.4% to 113.325 cents a pound, helped by stronger cash markets - and positive packer margins, of about $13.25 a head, even at these higher prices.

Regulatory data show speculators taking an increasing interest in cattle, with "managed money's " net long in Chicago feeder cattle tripling to 1,000 lots in the week to last Tuesday, and rising 4,800 lots to nearly 65,000 contracts for live cattle.

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