Chicago cattle futures soar to record high on strong beef demand

Cattle futures in Chicago surged to an all-time high as strong exports and improving domestic beef demand forced meatpackers to bid more aggressively for tighter animal supplies.

Slaughter-ready steers traded around $1.14 a pound earlier this week in U.S. Plains cash markets, topping previous records set in 2003, according to U.S. Department of Agriculture data. Cash prices may surpass $1.20 by this spring, some traders say, assuming demand continues to grow.

A combination of rising U.S. beef exports and smaller imports is a prime factor in the cattle market's rally, said Jim Clarkson, a broker with A&;A Trading at CME Group in Chicago.

Cattle futures are "really being led by the cash," Clarkson said. "The packer, he's got to pay up for cattle."

In trading March 9, cattle futures for April delivery rose 2.2725 cents to settle at $1.17525 a pound. Earlier in the session, April rose 3 cents, the maximum daily move allowed, to $1.178 a pound, the highest price for a contract closest to expiration since CME launched cattle futures in 1964. December futures rose 0.9 cent to $1.223.

Cattle futures rose 25 percent in 2010 and are up another 9.2 percent so far this year, reflecting growing demand as well as herd cutbacks that followed the 2008-09 recession that led to deep losses for the beef industry. U.S. beef exports jumped 19 percent last year as Japan, South Korea and Taiwan bought more, and analysts predict another increase this year.

The demand strength has also pushed beef prices to record highs. Earlier today, boxed beef averaged $1.7684 a pound, up 5.2 percent since mid-February and above the previous high reached in July 2008, according to USDA data.

High cattle prices fueled a profit resurgence for feedlot operators over the past year after the industry suffered at least two years of losses. Margins have come under pressure, however, amid soaring prices for corn and feeder cattle.

Corn prices have nearly doubled since the middle of last year and last week hit a 32-month high at $7.35 a bushel in futures trading. At today's close, March corn fell 4 cents to $6.94 ¾ a bushel.

Despite high cattle prices, there are few signs of expansion in the beef industry, Oklahoma State University economist Derrell Peel said, noting "serious concern" that costs for feed and other inputs will continue to increase, erasing profit.

There is "excitement with current price levels but general skepticism that these prices will last," Peel said in a recent report. "This feeling that current prices are a short-run aberration, which will soon be followed by a market correction, belies the fact that the supply fundamentals underpinning the current market have been building for several years."

As of Jan. 1, the U.S. cattle and calf herd totaled 92.6 million head, the lowest for that date since 1958, according to a USDA report.

Concerns have grown recently as turmoil in the Middle East pushed crude oil prices to the highest levels since September 2008. Rising gasoline and diesel prices are increasingly pinching consumers, raising concern that some may forgo more-expensive foods, such as steaks.

In trading March 9, oil futures in New York fell 73 cents to $104.29 a barrel, up about 29 percent over the past year.

In the CME cattle futures pit, traders such as Phil Stanley expressed trepidation over the market's recent rally and wondered whether a sharp sell-off is imminent.

"These are higher prices than anyone thought we would see," Stanley said March 9. "Usually when you gain this fast, you give it back just as fast."