Magazine article Modern Trader

Who Killed Cattle Prices?

Magazine article Modern Trader

Who Killed Cattle Prices?

Article excerpt

Live cattle prices (June futures) plummeted over 16% for 50 days beginning April 5, to about $62 per cwt., leaving much blood on the tracks and calls of market manipulation from besieged feedlots.

Not so, says a CFTC report showing packers became net buyers midway through the price move, while no traders had taken advantage of expanded speculative trading limits since February.

Funds, including commodity pools, CTAs and hedge funds, were heavy sellers ahead of USDA's April 22 Cattle on Feed report. But while they may have sped the decline, the CFTC report says it's not clear whether the technically driven funds add "to the magnitude or direction of the price change or whether they are reacting to the price change."

There are strong fundamental reasons for dropping cattle prices. For example, fed cattle numbers and frozen beef stocks are at their highest levels since 1973 and 1979, respectively, and last year's wet, cold winter has led to cattle being about 30 lbs. heavier after dressing.

Net futures and options positions, all months combined, for
reportable commercial traders and funds in CME live cattle
contracts expressed as a percent of open interest

                           Commodity pools,
                            hedge funds &
                           managed accounts
Date       Commercial         programs

          Long    Short     Long    Short
4/05/94   40.8    44.7      6.0     0.0
4/12/94   38.5    44.3      4. … 
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