U.S. cattle: Futures continue to climb on tight supplies

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CHICAGO (Dow Jones)--U.S. live cattle futures rallied Tuesday on continued support from a government report Friday, technical strength and climbing equities.

CME live cattle for October delivery was recently up 0.85 cents, or 0.7%, to $1.20575 per pound while December live cattle was up 1.275 cents to $1.21.

October feeder cattle was up 2.625 cents, or 1.9%, to $1.4045.

Fueling cattle's rally is a Friday U.S. Department of Agriculture report showing that ranchers placed 1% fewer young cattle in feedlots versus a year earlier. Analysts had expected an increase of 7.7%.

"Obviously, supplies are a lot tighter than we thought," Rich Nelson, director of research for Allendale, an Illinois brokerage, said.

The question for market bulls, analysts said, is how much mileage they can get out of the report.

The report and Monday's subsequent rally has created technical momentum that gives more upside to prices, traders said. The December live cattle contract doesn't have overhead resistance until $1.2125 a pound, said Chad Henderson, analyst with Prime Ag Consultants in Wisconsin.

Friday's report was considered evidence that many ranchers have fewer animals to sell after a severe drought in the southern Plains forced many of them to liquidate their herds faster than usual. The completion of that process, along with solid demand, will provide long-term support, analysts said.

"All of this sets the stage for sharply contracting feedlot supplies by mid next year and beyond," brokerage FCStone said in a morning report to clients.

Amid these trends, deferred feeder cattle contracts for 2012 have surged to contract highs.

Outside markets are providing background support, traders said, as corn and equities are higher while the dollar is lower.

The outlook for cash cattle prices this week is higher based on sharp gains so far in the futures markets following Friday's bullish cattle-on-feed report.

Cattle owners are asking considerably higher prices for their animals this week following Monday's sharply higher to limit-up gains in live and feeder cattle futures along with further gains in overnight trading. In addition, this week's showlists, or number of cattle offered for sale, were down from a week ago.

Cash trading will likely not get underway until Thursday or possibly Friday after packers purchased larger numbers of animals last week. No bids are expected until late today or Wednesday.

Prices last week in Texas, Oklahoma and Kansas were at mostly $1.16 a pound on a live basis, down generally one cent a pound from the previous week. In Nebraska, most of the week's sales occurred on Thursday and ranged from $1.82 to $1.84 per pound dressed and $1.15 to $1.16 live.

The U.S. Department of Agriculture reported choice beef prices Monday up 86 cents a hundred pounds at $184.17. Select was up 50 cents at $169.44. Beef sales on the day were reported at 183 total loads.

The latest HedgersEdge packer margin index was minus $7.15 a head, compared with minus $16.50 the previous day. This is an estimate of packer returns on cattle slaughtered and processed expressed in the form of an index.

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