Cattle futures at the Chicago Mercantile Exchange (CME) experienced a sharp decline on Friday, with back-month feeder cattle contracts hitting new lows. The drop was fueled by recent economic data indicating a weakening U.S. economy, prompting market participants to unwind long positions and seek safer investments, Reuters reported.
The sell-off in livestock futures followed the U.S. Labor Department’s announcement that the unemployment rate had surged to its highest level in nearly three years in July. This development heightened fears of a potential recession, leading investors to seek refuge in safer assets, which in turn contributed to a global equities sell-off, a significant drop in the U.S. dollar, and a decline in U.S. Treasury yields to multi-month lows.
The volatility extended to U.S. agricultural markets, with livestock futures fluctuating significantly due to algorithmic trading. For instance, September feeder cattle futures exhibited a contract range of 730 points, equivalent to a $3,650 swing per contract within the trading day, according to independent livestock trader Dan Norcini.
Speculators had been maintaining net long positions in cattle futures, driven by unexpectedly strong demand for beef, while holding net short positions in hogs due to sluggish pork demand, traders noted.
Despite robust cash market prices for fed cattle, which are near record levels—with a reported trade in the Southern Plains at $188 per hundredweight (cwt) on Thursday—cattle futures continued to decline. “With cash markets red hot, the significant drop in cattle futures is puzzling,” said Mike Zuzolo, president of Global Commodity Analytics. “The explanation lies in algorithmic trading.”
On Friday, CME August live cattle futures closed down 0.700 cents at 184.100 cents per pound, while the most-active October live cattle futures settled down 1.650 cents at 182.075 cents per pound. CME August feeder cattle futures ended the day down 3.500 cents at 249.650 cents per pound, with the September feeders closing down 3.650 cents at 248.150 cents per pound. Additionally, CME August lean hog futures closed 0.950 cent lower at 92.200 cents per pound, and October lean hog futures ended down 0.450 cents at 76.575 cents per pound.
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