Cattle and hogs were higher early Friday, grains were trading lower.
Cattle Rally on Cash Hopes
Cattle futures were higher early on Friday working in ideas of better cash trade and shrugging off the lower boxed beef prices Thursday afternoon.
A few sales were reported by USDA on Thursday at $220 live and $350 to $355 dressed. The South has been quiet.
So with the rally in the futures can the cash market achieve higher money this week?
Joe Kooima of Kooima Kooima Varilek the futures have done a lot of heavy lifting the last three to four weeks with the stubborn cash market.
“You know four weeks in a row at $226 down the south, last week we had $218 to $220 in the north again with a hint that the $220 was maybe a little bit more available than it was in the past few weeks. So given the condition that this futures market just wants to kind of defy gravity and stay a big premium above the north anyway, we have some higher hopes now that we can finally see that needle move just a little bit for cash.”
So Kooima is optimistic for a $222 or $223 live cash market in the north.
“I know there’s a lot of $350 bids out there here currently this morning. So it’s nice to see some competition out there anyway that we’re seeing some bids come forth because last few weeks we’ve just been more, what do you got? We’ll take it
type of a strategy there.”
North Needs to Get Current
Kooima says with cattle at heavier weights in the north a higher week of cash would be a gift that producers need to act on, especially in northwest Iowa, because they have lost leverage.
“It’s just that you talk to people from Eastern Iowa, you talk to people from Western Nebraska and the South. I mean, they’re cleaned up. They’re, especially the South, they can kind of see their choice selects for other selects gaining a little bit on the choice just down there. So that tells you they’re more current,” he says.
Kooima understands that cattle feeders are pinched especially with horrible replacement costs and so the tendency is to add weight but its serving as an anchor on the market.
“It looks like if we can get the market here where we are $2 to $3 better than last week we just have to take it and move on,” he adds.
Will Northern Feeders Get Leverage Back?
Once the north is current on marketings will the premium the south holds narrow up? And can producers get their leverage back?
Kooima says it used to take a few weeks to clean up the bigger cattle but with the tight supply it could be a quicker turn.
Technical Breakout?
December live cattle did get above the September high of $227.50 last Friday but have not been able to close back above that area this week. That is the line in the sand for Kooima to turn the technicals enough to get the funds back in buying.
“You can see like yesterday, we got up to $227.90. Then also, boom, we’re back down to $227.25.”
He says the technical picture is more positive on the feeder cattle chart. “You got inverted head and shoulders on a majority of these feeder contracts, including some of the deferred live cattle too.”
So, if the cash market is higher this week he thinks overhead resistance areas can be taken out opening the door for higher prices.
Feeders Have Tailwind of Lower Corn
Feeders have the tailwind of not only higher cash in the country but corn has corrected 70 plus cents off the highs from September.
The futures responded in spades last Friday with the 20 cent pullback in corn and so that may help feeder futures a bit higher.
Third Port Set to Reopen
The market will soon be gearing up for the reopening of a third port to Mexican feeder cattle in New Mexico.
So far the numbers have been slowly creeping back up. “I think up until two weeks ago, it was up to about 8,000 or 9,000 across that week. And that was about 2,500 had more than the prior week. And then we’re going to have another port open here shortly. So those numbers are definitely increasing and shouldn’t be ignored. By the end of the fourth quarter, we could have... 12,000, 15,000, 18,000 a day in some cases,.”
He says this will impact placements. “So it’s something that we should keep in the back of our mind, especially for some of these deep deferred live cattle contracts. If we can get another technical push in this market in the month of October, I guess got to be looking at that June and maybe August and October for next year, because that’s when some of these new placements coming
from Mexico are going to be ready.”
Hogs Reverse Off Contract Lows
Lean hog futures set new contract lows yesterday and then reversed higher. The question is can the market put together two days of higher closes and start to bottom?
Kooima is cautious. “When the technical charts look crummy as they have been, you’ll make a new low buy for a day or two, then that market might just come back and just have a dead cat bounce. And that’s what it looks like to me right now. I don’t like to use the word that things look too cheap. We got to buy it because cheap is a relative concern and everybody’s got a different opinion with that at all.”
He says the cash market needs to stabilize as well as the cutouts which are below $80 and setting 3 1/2 year lows due to sluggish demand.
“The funds have a big short position yet too and it’s you just got to convince them to come out of there and I just don’t see it here currently but it’s a long time until next June and that’s well below 90 cents yet,” he adds.
Corn, Soybeans Take Out Support
Corn futures closed below the 200-day moving average on Thursday and were seeing some follow through selling on Friday.
Corn is following soybeans and seeing some harvest pressure.
Kooima says the corn market has not take out the lows from report day when USDA shocked the market with the 2.7 bushel per acre yield hike, so that is at least encouraging.
“For corn to come back off the lows that last Friday and just close 25 cents lower. Be a little bit higher Monday, Tuesday and get away from those lows. And like these commercials are probably stepping in here and saying, wait, you’re going to give us a chance to buy corn 25 to 30 cents cheaper on a report that’s a little bit suspect, you know,” he says.
Soybeans did take out the report day lows on Thursday with the bearishly construed NOPA crush report causing funds to liquidate. That’s despite confirmation of China sales this week in a classic “buy the rumor, sell the fact” reaction. China bought another 20.5 million bushels of soybeans Friday morning and unknown destinations were on the books for 8.7 million bushels, but it failed to move the market.
