Cattle and grains futures are mostly lower early, with hogs rebounding after a lower opening.
Cattle See Early Pressure on Risk Off Selling Tied to Iran Conflict
Cattle futures were lower on the opening in reaction to the risk off selling in the financial markets and the higher dollar, which is tied to the U.S. and Israel attacking Iran over the weekend. That has also sent energy prices higher.
Brad Kooima of Kooima Kooima Varilek says the cattle futures are reacting negatively to that uncertainty and had already started selling on Friday in fear of the increased tensions.
“The easiest dynamic is to look at what’s going on with the stock market whether you like it or not cattle futures have a tendency to to to follow some of those macro financials. Now the stock market is a lot better it’s still lower but it’s way better than it was and i think that might be contributing to a little bit of this comeback that we’re seeing on the cattle here early morning but yes the the whole issue of uncertainty. I think that the war issue or the whole conflict here with Iran, do I think that that is a game changer on the cattle? I don’t think that will be by itself because hopefully it doesn’t last very long”
He says eventually the conflict should be bullish cattle. “So, hopefully by the time we get here the next week and we’re talking again, that this is a little bit calmed down and we’re not worried so much about that anymore.”
Cattle Futures See Technical Damage
Cattle futures posted lower weekly and monthly closes on Friday and did some technical damage to the charts. Monday the market took out the 100 day moving average on the April live cattle and so that is an area of support Kooima is watching that needs to hold. “We’ve got a softer technical picture than we’ve had here since, well, around Thanksgiving.”
Kill Levels, Weights a Concern
Kooima says kill levels are also a concern with last week’s slaughter at only 516,000 head which is near COVID levels. At the same time weights are climbing. “I think that there are some feedlots that have been intentional about making cattle bigger you know i’ve heard that over and over well my break-evens are high. I could take a little less and still put 100 pounds more and still have more dollars. You know, that story. Replacement costs are very high. Feeds cheap. And on top of it, we barely had winter. So the performance of cattle here across the north especially has been amazing. You know, so we don’t feel very current here for a moment.”
Producers Lose Cash Leverage
That has led to producers losing their leverage in the cash market and saw declining prices through the end of the week. He says, “Cash was not good at $244, we sold cattle for on Thursday. And by Friday late, we were selling cattle at $240. Some places even a little less than that. Some $239 in western Nebraska. So, yes, the tone and the psychology, you know guys turned into pretty easy sellers. We’ll see how much that translates into this week. Definitely felt like leverage did flip here during the week last week.”
Fear of Strike at Greeley, CO, JBS Plant
There were social media posts that week that spooked the market with unconfirmed rumors that workers had voted to strike at the JBS beef plant in Greeley, CO. That situation is still not resolved according to Kooima. “I don’t know when they’re going to vote, whether they’re going to walk out or not. It’s a fluid situation. And I think no one will know until it happens, if it happens. My sense was is that the likelihood of that walkout is less now than what it was when this whole rhetoric began almost two weeks ago but we shall see.”
Is the Cattle Market Top In?
Kooima says he thinks there is a short term top in the futures market and the all-time highs may also be in. He is watching some critical chart areas for confirmation. “We’re going to struggle with the market here a little while. We’re in this stretch here where demand is not great. The packers got a little bit of leverage. Could April cattle get back to $225, which is halfway back in this leg up? I guess I could see that happening $225 ish. And then maybe if we get cleaned up, which I don’t think will take forever, we still don’t have a big supply of cattle, then I could very easily see like a replay of something like we did last year where we come into that May-June slot, that time period, kind of the new April, right? Because we’ve pushed that calving rate back so far. And then to see the market come back nicely as we see that improving demand.”
He says at the market gets closer to Mother’s Day he will feel better about the market turning around. “I think April cattle have to close above $238 to get the funds back in the market to take out the highs above $244. So we’ve got we’ve got a tall task here now to get the funds to to really have confidence in the market and the funds don’t like this uncertainty.”
Hogs Rebound as Funds Buy
Lean hog futures started lower and quickly turned back higher on fund buying and continued disease concerns. Kooima says, “The funds sure seems to be heavily engaged there. The fundamental story here from some of the hog guys that we talked to is we’re back on this disease topic and PERS, PEDV, and a lot of it. And I think that that’s getting some traction again in the market.”
He says it’s pretty remarkable the way they held together, given that collapse in the cattle.
Grains Make New Highs for the Move Then Collapse
Grains made new highs for the move and soybeans took out the November highs overnight before seeing risk off selling pressure tied to the Iran tensions and the higher dollar. Kooima says for soybeans the concern is that China is backing Iran in the Middle East conflict and that could cause them to back away from the April meeting.
“Epecially for China, they’re not a fan of this whole operation. I’m afraid sooner rather than later, where South America becomes a viable alternative for them to get their stuff from, then I worry that you’re going to start to hear, well, what about that supposed 25 million metric tons that they were going to get from us? How come they’re not doing that? This action makes me a little queasy. New highs for the move and then lower for the day.”
He says while he’s cautious on soybeans making a top, seasonally it is the time of year where corn can rally especially due to a weather problem. “It’s not the time of year usually where it pays to be real bearish, usually between March 1 and May 1 the market sees a little life,” he explains.
