090220 Cattle Futures Drop as Beef Tumbles to 3-Year Low; Hogs Fall

February 19, 2009

(Bloomberg) -- Cattle futures fell for a third straight day as tumbling beef prices signaled that demand for the meat may be dropping as the U.S. economy slumps. Hogs also sank.

Wholesale choice beef prices extended a slide today to the lowest since September 2005, U.S. Department of Agriculture data show. Meatpackers may not pay higher prices for cattle as their profit margins shrink, said David Kruse, a commodity trading adviser at CommStock Investments Inc. in Royal, Iowa.

"Nobody in the cattle industry is making money now, despite the great efforts that have been made to moderate supply," Kruse said. The U.S. beef-cow inventory is the smallest since 1963, according to the USDA.

Cattle futures for April delivery fell 0.5 cent, or 0.6 percent, to 87 cents a pound on the Chicago Mercantile Exchange. The price still rose 0.3 percent this week, the second straight weekly gain. Feeder-cattle futures for March delivery slid 0.675 cent, or 0.7 percent, to 94.475 cents a pound. The price still added 0.1 percent for the week, also the second consecutive gain.

Wholesale choice beef dropped 0.36 cent, or 0.3 percent, to $1.3576 a pound at midday, USDA data show. The price has tumbled 11 percent since Jan. 20.

Futures fell in tandem with the Dow Jones Industrial Average of 30 U.S. equities, which slid 1 percent. President Barack Obama's $787 billion plan to revive the economy, passed today by the House of Representatives, may not work, Kruse said. The Senate may vote on the bill later today.

"It's designed as an effort to control unemployment, but it's sort of like throwing a couple of rocks and trying to create a dam," Kruse said. "It might slow the flow, but it's not going to stop it."

Hog Market

Hog futures fell for the second time in three days on speculation that U.S. meatpackers will spend less to buy animals because the cost has risen faster than pork prices.

The 5.8 percent gain in wholesale pork this year trails a 16 percent rally in cash-market hog prices, eroding meatpackers' profit margins, USDA data show. Processors pay cash- market prices on animals for immediate delivery. Cash prices have risen as hog supplies have declined, Kruse said.

"We've basically run the margins red for packers who have been paying up for cash hogs and not recovering it in the product market," Kruse said. "The demand side is just flat. The packers have been wanting to maintain a relatively aggressive kill because we're seeing fewer numbers coming down from Canada."

Hog futures for April settlement fell 0.05 cent to 63.75 cents a pound in Chicago. The price increased 5.5 percent this week, capping a three-week slide.

Slipping Pork Prices

Wholesale pork declined 0.13 cent, or 0.2 percent, to 58.54 cents a pound yesterday, USDA data show. The price was 55.32 cents on Dec. 31. As of Feb. 7, the U.S. had imported about 709,700 hogs from Canada this year, 49 percent fewer than a year earlier. Shipments have slowed as the Canadian herd has decreased. Canada is the largest foreign supplier of live hogs to the U.S.

Imports also may have been affected by a new food-labeling policy that requires U.S. food retailers to show the country of origin for products they sell.