LIVESTOCK-Cattle tumble as funds add to beef worries

Trade the News

Wednesday September 08, 2010 06:18:20 PM GMT

* Cattle fall 2.1 percent to near three-week low

* Talk of slow beef sales during holiday

* Funds liquidate after seven-weeks of buying

* Hogs follow as funds sell commodities

(Update throughout, adds closing prices)

By Jerry Bieszk

CHICAGO, Sept 7 (Reuters) - U.S. cattle futures fell 2.1 percent on Tuesday when fund liquidation added to pressure from bearish talk of slow beef sales during the three-day holiday weekend.

Hog futures followed as funds liquidated some of their long positions in commodities amid a higher dollar and lower stock market, with spreading pushing the lead October contract sharply lower.

In cattle, traders were disappointed by talk of slow beef sales over the U.S. Labor Day holiday weekend, which is considered the last "cookout holiday" of the summer.

"Beef product movement was average at best, with pork and chicken breasts leading the holiday sales parade," Andy Gottschalk, an analyst with with HedgersEdge.com, said in a market report.

Adding to the bearish sentiment was the U.S. Agriculture Department on Tuesday afternoon reporting the average choice beef price at $161.75 per cwt, down 92 cents from Friday and the lowest since Aug. 19. While the decline was small, analysts and traders said it was evidence of weak holiday beef sales.

"The bottom line is consumers may not be ready for steaks yet," said Rich Nelson, an analyst with Allendale Inc, who added that hot dogs and hamburgers may have been the meat choice for holiday cookouts.

Funds liquidating huge long positions then pushed futures down to new lows late in the session.

More downside is likely for the October cattle contract as this week marks the beginning of week-long December/October spreading by index funds. The funds will use spreads to move long positions to the deferred contract.

While cattle and beef markets may be under pressure now, the prices have been well above year-ago levels throughout the summer due to smaller beef supplies and better sales, particularly beef export sales.

October live cattle closed down 2.100 cents at 96.350 cents per lb and December down 1.950 at 98.700.

Feeder cattle futures also posted near three-week lows, pressured by lower live cattle futures and by worries about higher corn prices.

Corn markets ended firm on Tuesday and feeder cattle traders remain bearish after corn prices sped higher last week. Higher feed corn prices drive up cattle production costs and make producers cautious about what they pay for feeder cattle.

Fund liquidation was also evident in feeders.

September feeders ended down 2.250 cents, or nearly 2 percent, at 111.925 cents and more active October was down 2.650, or 2.3 percent, at 112.425 cents.

Hog futures fell along with cattle pits, pressured by lower pork prices on Friday and by profit taking after last week's gains in the futures.

Hog futures were up more than 3 percent last week, with traders encouraged then by a government employment report showing an increase in private sector jobs. But fund liquidation over all commodities on Tuesday also hit hogs.

October hogs closed down 1.600 cents, or about 2.1 percent, at 75.600 cents per lb and December was off 1.100 cents, or about 1.5 percent, at 73.550 cents. (Additional reporting by Bob Burgdorfer; Editing by Lisa Shumaker)

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