U.S. cattle: Prices weaken as meat demand concerns mount

Cattle futures markets Thursday are weaker as investor concerns about domestic meat demand mount, overruling expectations of larger exports made possible by a weaker U.S. dollar.

The April contract recently traded on the Chicago Mercantile Exchange at $1.1680 a pound, down $0.47 or 0.40%. June was off 0.22c, or 0.20%, at $1.1332.

May feeder cattle were at $1.3097, up 0.57c, or 0.44% in electronic trading while August was up 0.42c, or 0.31%, at $1.3527.

Federal Reserve Chairman Ben Bernanke's comments Wednesday indicating the Fed had no plans to alter its loose money policy were supportive to gold but pressuring to the dollar. He said there were no plans to tighten the money supply after the end of its second Quantitative Easing program came to an end in June.

Bernanke indicated inflation was not a major concern of the Federal Reserve at this time, sending investors to move funds into gold or other investments.

The lower dollar should have been supportive to cattle futures because of expectations for increased exports. However, indications of declining domestic beef demand with wholesale prices struggling to hold near recent highs and packers cutting slaughter rates had traders moving funds out of cattle, overruling the influence of a weaker dollar since domestic demand consumes about 87% of U.S. beef production, said Mike Zuzolo, president of Global Commodity Analytics and Consulting.

Yet inflation may be a larger issue than Bernanke was letting on, and investors appear to be worried. Thursday, the Commerce Department released its inflation and consumer purchasing reports showing personal consumption expenditures were up 3.8%, compared with expectations of less than 2%.

"Bernanke said inflation was 'transitory,' but after these figures we might be able to say inflation is 'substantially transitory,'" Zuzolo said.

Meat demand also is beginning to weigh on traders' minds, said David Hutchins, president of Amarillo Brokerage. The U.S. Department of Agriculture reported the composite carcass price for pork Wednesday was down $2.38 a hundred pounds to a six-week low of $92.44. Wholesale beef prices also were lower.

This year's grilling season has gotten off to a slow start with cool, wet weather blanketing many large consuming areas of the country. Grilling demand usually boosts consumption of steaks and chops, the more expensive cuts from the carcasses. Grilling activity usually fades in the summer, and many retail and restaurant dealers already are booking beef orders for the summer months after seeing a slow grilling season, a time when meat demand should have been strongest.

The reasoning goes that if demand is slow when it should be strong, demand should be even slower at a time of year when it should be sluggish, the analysts said.

Beef packer slaughter rates this week are down from last week, a response to lowered beef orders and resistance to recent beef prices that reached 7 1/2-year highs in early April, Hutchins and others said.

Traders worry that further reductions in slaughter rates are coming just at a time when the number of available slaughter cattle increases seasonally.

The USDA Wednesday reported its choice composite wholesale beef price was down $0.83 a hundred pounds to $184.73. Select beef was off $1.00 at $179.61. The volume of steaks and roasts sold was a moderate 160 loads, and there were 56 loads of trimmings and coarse grind product reported.

The latest HedgersEdge packer margin index is a minus $18.35 a head, compared with the previous estimate of a minus $13.75 cents. This is a rough estimate of packer returns on the cattle they slaughter and process expressed in the form of an index.

Feeder cattle futures were near flat in early trading, pressured by the lower prices for slaughter cattle in the fall, implied by October live cattle futures and slightly higher corn prices. Support is coming from investor short covering that is being carried over from Wednesday's rally.

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