Live cattle futures (August delivery) remained unchanged over the 1 May-31 July review period on the Chicago Mercantile to end at US$1.22 per pound. A standard 40,000lb contract was worth US$48,800 on 31 July.
Market fundamentals were regarded as weak and hampered a significant recovery in prices. Cattle on feed data between May and July, released by USDA at the end of every month, showed a slight decrease of 3% on the previous year. Cattle on feed lots are destined for slaughtering and are used as a benchmark to measure future demand for beef. Poor exports to some of the US’ key markets were regarded as a negative factor for prices. Russia stopped importing all US meat and pork products in February 2013 over concerns about the use of a feed additive which is also banned in China and Europe. The latest data for Russia, released by official sources, showed that beef imports were down by 27% in June. Meat imports in Russia have fallen because of government changes to import policies.
Beef and Veal Sales Forecast, Russia
Source: Euromonitor International
Weak demand in Spain depresses European prices
The latest figures published by the European Commission show that EU weekly average prices for beef and veal (carcass prices) declined by €3 per 100kg between 6 May and 7 July. One of the reasons behind this drop was the steady decline in price registered in the Spanish market (€10 per 100kg). Official statistics in the country show an increase of 6% in the consumption of pork in June. Beef and veal, on the other hand, saw a decline of 4%. This is because the current economic situation is pushing Spanish consumers to trade down from beef to pork. Weaker demand for beef, in turn, resulted in lower prices.
The latest figures published by the European Commission show that EU weekly average prices for beef and veal (carcass prices) declined by €3 per 100kg between 6 May and 7 July. One of the reasons behind this drop was the steady decline in price registered in the Spanish market (€10 per 100kg). Official statistics in the country show an increase of 6% in the consumption of pork in June. Beef and veal, on the other hand, saw a decline of 4%. This is because the current economic situation is pushing Spanish consumers to trade down from beef to pork. Weaker demand for beef, in turn, resulted in lower prices.
October outlook
Global beef manufacturers seeking to sell their products in October should consider a number of factors. Firstly, international corn prices for September delivery are at historically low levels, which reduce the chance of a short-term surge in the cost of beef production. Corn is used as a core ingredient in cattle feed. In addition, the present warm weather allows cows to graze in fields, reducing the amount of feed grain needed for cow and veal fattening. This reduces further the cost of beef and veal production. An additional factor reducing the possibility of a short-term recovery in prices is the end of the US grilling season in September. Conversely, current trade talks between the US and Japan could open up a window of opportunity for beef exports. Japan, the world’s largest pork importer and Asia’s biggest buyer of beef, may agree to remove duties on meat. This could result in stronger demand for US meat and offset the downward effects on prices of lower production costs.
Meat manufacturers could achieve hedging (protection) against potential price drops in the cash market by going long (buying) on October put options (right to sell) at US$1.18-1.20 per pound support levels.
Hedge Through Put Option: Right to Sell at US$1.20 Per Pound in October
Source: Euromonitor International