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Cattle Showdown Stews as U.S. Herd Grows Along With Fund Wagers

Michael Hirtzer and Dominic Carey
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Cattle Showdown Stews as U.S. Herd Grows Along With Fund Wagers

(Bloomberg) -- The number of U.S. cattle in feedlots just jumped to the highest since 2011, threatening to leave hedge funds flat-footed after they increased their wagers on a price rally.

Farmers in November placed 2.09 million cattle in feedlots, where they fatten up on corn before going to market. That was up 4.9% from a year earlier, U.S. Department of Agriculture data showed Friday. Analysts were forecasting a 1.2% gain. The increase boosted the total feedlot herd to 12.03 million head.

The figures were released about a half hour before U.S. government data that showed money managers lifted their net wagers on a cattle rally to the highest in seven months. The investors could end up caught by surprise when the market reopens on Monday.

The cattle-on-feed numbers are “probably going to get a bearish reaction in the market, especially with beef prices coming down and packer margins tightening,” said Doug Houghton, analyst at Brock Associates Inc. in Milwaukee.

Still, strong beef demand could cap price declines. China is importing massive amounts of meat from all over the world to fill a protein gap after the African swine fever virus killed millions of hogs in the top pork consumer and producer.

That helps explain why investors are betting the cattle market will continue to rise.

Money managers increased their net-long cattle position to 88,063 futures and options as of Dec. 17, U.S. Commodity Futures Trading Commission data showed on Friday. The figure, which measures the difference between bets on a price increase and wagers on a decline, is the most bullish since May.

The funds are likely to protect their cattle long-positions, said Dan Norcini, an independent livestock futures trader.

“The funds are not going to let go of those cattle,” Norcini said by telephone. “You are going to need a big fundamental change to spook the funds out of the cattle market.”

To contact the reporters on this story: Michael Hirtzer in Chicago at mhirtzer@bloomberg.net;Dominic Carey in Washington D.C. at dcarey5@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi, Reg Gale

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