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Jan. 20, 2011 Drovers reports: Cattle futures in Chicago climbed to a record high before ending lower, while hog futures reached the highest levels since August, amid expectations an outbreak of foot-and-mouth disease in South Korea will boost demand for U.S. meat. South Korea has destroyed about 15 percent of its combined pig and cattle herd after reporting 120 cases of foot-and-mouth since the outbreak began in November, Reuters reported today. About 2.1 million animals, mostly pigs, have been slaughtered. "Reports out of South Korea suggest a worsening situation," Dennis Smith, an analyst with Archer Financial Services, said in a report this morning. South Korea's herd cull further inflamed bullish sentiment in CME Group cattle and hog markets, suggesting even stronger demand from a country that's already one of the biggest U.S. customers for beef and pork. Earlier today, wholesale beef prices surged to the highest levels since July 2008, according to U.S. Department of Agriculture reports. February live cattle futures today settled 17.5 cents lower at the equivalent of $109.20 per hundred pounds, after reaching $112.375, an all-time high for a closest-to-expiration contract since CME launched cattle futures in 1964. February lean hogs rose 95 cents to $80.60 per hundredweight, after touching $81.525. Also today, CME corn futures rose to a 30-month high on continuing concern over tight global grain supplies. U.S. beef and pork exports for 2010 were already on pace to surpass 2009 levels before South Korea's foot-and-mouth outbreak. Strengthening demand came as U.S. herds shrank, pushing cattle and hog prices higher much of last year. At the retail level, beef and pork prices also increased last year and are widely expected to climb further in 2011. South Korea imported 250 million pounds of U.S. beef during the first 11 months of 2010, more than double the 121.6 million pounds shipped during the same period in 2009 and fourth-highest among all buyers, according to USDA data. Cattle futures are up 1.7 percent so far this year after rallying 25 percent 2010. But some CME traders are skeptical prices can continue climbing. Cash market fundamentals don't justify futures at current levels, said Phil Stanley, an independent cattle trader at CME. Additionally, high cattle prices have led to growing losses for meatpackers that may prompt them to reduce slaughter, Stanley said. "There's talk of exhaustion in the beef market," Stanley said. Futures are "probably $4 to $5 overpriced. We're a house of cards here." On the major U.S. cash markets of the Plains, slaughter-ready steers averaged $104.80 per hundredweight earlier today, down from $107.40 at the end of last week, according to USDA reports. Wholesale boxed beef averaged $1.7259 a pound earlier today, up 8 percent over the past four weeks and the highest since prices hit records at $ in July 2008, according to USDA data. In the corn market, prices extended the recent rally partly on beliefs recent rainfall will be insufficient to alleviate dry conditions in Argentina. Despite increasingly steep prices, demand from ethanol makers and other major corn users shows little sign of slowing, traders said. "We've got to get to a price where we ration demand," said Matt Maloney, a broker with R.J. O'Brien & Associates in the CME corn pit. That price may be around $7.50 a bushel, he estimated. March corn futures rose 10 3/4 cents to settle at $6.59 1/2 a bushel, up 4.8 percent this year. Earlier today, March futures touched $6.62 3/4, the highest for a front-month contract since mid-July 2008. Tweet |
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