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CME update: live cattle close higher, following strong cash market

18 May 2020

US live cattle futures closed higher on 15 May, with gains in front contracts against previous months.

Traders report that the trend was led by higher cash cattle prices. Reuters reports that cash cattle traded as high as $120 per cwt in the southern Plains on Friday. The USDA says that the trades are up from a week earlier, when they ranged from $95 to $116. The latest top cash price represented a huge premium over CME live cattle futures, which have been lagging below $1 per pound, or $100 per cwt.

The nearby CME June live cattle contract rose its daily 3-cent limit for part of Friday's session as traders scrambled to catch up to the strong cash market. June futures settled Friday up 2.875 cents at 97.0 cents per pound, while August live cattle ended up 0.825 cent at 97.825 cents a pound.

The firm cash trade overshadowed pressure from a larger weekly cattle and hog slaughter and a retreat in wholesale beef values this week from record highs.

The COVID-19 pandemic has wreaked havoc on the meat industry this Spring. Outbreaks caused at least 30 processing plants to temporarily idle production over the past two months. The slowdown in processing has sent wholesale beef prices to historic highs.

The shutdowns also caused massive bottlenecks of market-ready cattle in the US, normally a bearish market factor.

As slaughterhouses begin reopening, livestock futures markets have remained volatile.

"It's a weird, weird situation," said Dan Norcini, an independent livestock trader. "We are seeing beef prices coming down from the stratosphere. Everyone sees this and is trying to figure out what it will mean in the live cash markets," Norcini said.

Packer profit margins on Friday remained extraordinarily high at more than $900 per head of cattle, according to advisory service HedgersEdge.com.

Some traders suspect that meatpackers are paying up for cash cattle out of fears of a federal investigation into meat price disparities. President Donald Trump last week said he had urged the Justice Department to look into allegations that the meatpacking industry broke antitrust law because the price that slaughterhouses pay farmers for animals dropped even as meat prices rose.

"I really think these guys are running scared with the reports of the Justice Department potentially investigating price fixing ... That is the only way you can explain what is going on with the front-month June cattle," Norcini said.

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