U.S. live cattle prices are choppy to higher Wednesday as broad-market stability added to momentum tied to a recent government cattle-on-feed report.
Cattle for October delivery were flat at $1.206 a pound in trading at the Chicago Mercantile Exchange. The CME December contract rose 0.15 cent, or 0.1%, to $1.208 a pound. September feeder cattle futures were up 0.05 cent, or essentially flat, at $1.3265 a pound.
Futures again mostly edged higher as stable outside markets and a slightly weaker dollar helped add momentum to the beef complex. The beef complex has been riding an upward trend since Friday, when a U.S. Department of Agriculture report showed coming supplies are tighter than most industry participants expected. A weaker greenback, meanwhile, typically supports futures since foreign buyers gain more purchasing power in dollar-based markets.
The higher futures prices have met a healthy dose of skepticism among veteran traders since signals for beef demand have been softening in recent weeks. Although prices are expected to rise in winter and next spring as the drought in the South eventually leads to tightened supplies, there are signs that resiliently higher prices for beef this year, along with a recent rally in the dollar, have tempered demand.
"Beef traders look at the premium structure in the futures and shake their heads," said David Hales, publisher of Hales Cattle Letter. "They don't see domestic demand supporting prices that the futures market is developing."
The USDA reported wholesale choice-beef prices fell $1.12 Tuesday to $183.15 a hundredweight and select fell 78 cents to $168.66.
Many traders say there is strong technical resistance for futures at $1.21 a pound, or less than a cent higher than recent prices.
Cash-cattle markets are again expected to be quiet Wednesday as owners seek prices considerably higher than those from last week's sales.
Owners have been emboldened by a surging futures market after Friday's bullish cattle-on-feed report. Softer beef prices, meanwhile, have weighed on meat packers' margins, giving them reason to offer lower bids.
The latest HedgersEdge packer margin index per cattle is minus $13.40 per head, compared with minus $7.15 the previous day. This is an estimate of packer returns on cattle slaughtered and processed expressed in the form of an index.