Cattle Dive Lower

Cattle prices plunged this week to a five-month low to trade Friday near $1.15 per pound.

U.S. cattle production has been rising, which is putting pressure on prices, but the primary driver appears to be investment funds bailing out of their positions in the cattle market. Investors large and small often place money into the commodity markets, but large investment funds can have an oversized impact, especially on smaller markets like cattle. These investors previously held big bets on higher cattle prices, and as they liquidate their profits, the market collapsed by 7.5 cents per pound this week.

Wild market swings can make life difficult for producers and end users of commodities, as their long-term financial planning can be complicated by big moves, but they can also take advantage of aberrant prices by hedging future production and purchases.

Hog prices declined as well after news broke that China didn’t buy any U.S. pork last week. Pork prices have been buoyed on expectations that China will need to import U.S. pork due to the ongoing African Swine Fever in that country. Despite the decline, June hog prices are still exceptionally high at 90 cents per pound on Friday.

As a result, summer cookouts may feature more beef and less pork as cattle’s premium to hogs is relatively small, keeping burgers and steaks affordable compared to hot dogs and pork chops.