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Livestock futures up as drought hurts feed supply

ReutersCattle graze in a field in Missouri on Friday. U.S. ranchers are rushing to sell some of their cattle as the worst drought in nearly 25 years dries up pastures.

CHICAGO (MarketWatch) -- Investor concern has begun to shift to livestock as high summer temperatures and drought conditions harry the Midwest, withering pastures and prompting a jump in cattle and hog futures.

Lean hogs for October delivery (LHV2) ended 2 cents, or 3.1%, higher to 80 cents a pound Wednesday on the Chicago Mercantile Exchange, taking the edge off year-to-date losses of nearly 5%.

October live cattle (LCV2) rose 3 cents, or 2.4%, to settle at $1.23 a pound. Futures are down about 4% for the year. Feeder-cattle contracts for August delivery (FCQ) delivery gained 3 cents, or 2.2%, to $1.37 a pound. They have lost about 6% this year.

High temperatures are playing into concerns about future supplies of livestock futures.

"When things go dry, there's not much to eat out there," said Shelly Wolf, the outreach and communications coordinator for the USDA's Farm Service Agency.

A lack of rain and high temperatures have scorched farmland and prairies and left farmers scrambling to find sufficient food for their cattle.

On Monday, the FSA instituted emergency haying and grazing measures for several Kansas counties. That means farmers will be allowed to graze on lands that would otherwise be off limits, such as wildlife areas.

Earlier this month, these emergency measures were put in place in six states: Kansas, Nebraska, Wyoming, Colorado, Texas, and Oklahoma.

They are in place "strictly in order to provide a feed source for the cattle … to allow the livestock to get out there and graze, because of the drier conditions in the pastures," said Wolf.

For hog farmers, the issue isn't about finding suitable food, but keeping animals cool.

"In extremely hot temperatures, from the hog industry standpoint … they've got to be backing up production," said Steve Malakowsky, vice president at Agri-Business Capital.

The higher temperatures this summer have meant that hogs aren't gaining weight on schedule, which may force farmers to increase feed amounts.

"I would say most of them are going to try to hit their target weights," said Malakowsky.

Concerns about finding additional feed are compounded by concerns over crop yields, said Scott Capinegro, owner and president of Barrington Commodity Brokers.

"The crops and this genetic feed, they can kind of take this dryness part," he said on the Midwest drought. "The key to yield production is heat. This summer, we've got the heat, and it's not going anywhere."

On Wednesday, corn for December delivery (CZ2) rose 13 cents, or 1.7%, to $7.84 a bushel; corn has surged 23% this month after heat and lack of rainfall slashed yield outlooks from a record corn planting.

In addition to increased costs for farmers raising livestock, smaller crops across the nation and globe will most likely contribute to higher food prices come fall, Capinegro said.

"We're so used to low food prices; we've never had this happen before… we'll have increases this year, easily," he said.

On Wednesday, Alex Sosnowski, expert senior meteorologist for AccuWeather.com, released projections for corn crop yields lower than the USDA's recently cut predictions.

AccuWeather predicts a yield of 138 bushels an acre. The USDA predicted a 12% loss in yield, to 146 bushels an acre.