Cattle and grain markets were higher early Wednesday with hogs lower.
Cattle Rally on Technical Buying
Live and feeder cattle futures were higher to start Wednesday.
Kyle Bumsted of Allendale says the market is seeing technical buying and is right up into chart resistance.
“On the December live cattle, we’d like to see them get above that $223.50 area, or at least I would. If we can get above that on a closing basis, I think we could run this thing to $225 to maybe $227 and then try to figure out where this market’s at based off the cash,” he says.
With option expiration on the October contract this week and first notice day on Monday that contract will get tied to the cash.
Two Tiered Cash Market
The cash market has been two-tiered with the south last week getting mostly $226 and the north was at a discount. The five area weighted average steer price came in at $220.67, down $1.20 but it was based only on northern trade because of confidentiality in Kansas and Texas.
Bumsted says the north is struggling due to heavy rains, mud and heavy carcasses which will keep the northern trade pinned for the next 30 days.
“The last couple of weeks, I’ve been talking to some yards. They’ve had contracted cattle that go the end of October. They were able to get those cattle off to the packer. They were standing in a lot of mud, and they said, we just got to get them out of here. Cattle are not converting well, and they’re not finishing well, or they’re going backwards,” he describes.
So, those feedlots want to move the cattle as fast as they can.
Cash This Week?
Some light trade has taken place in the north at $350 dressed so around steady with last week on a light basis and Bumsted says steady will be a victory.
The South could also see steady money but Bumsted says trade may not occur until after the reporting cutoff again providing some uncertainty.
Boxed Beef Values Improving
He is watching the box beef market for direction. Prices have been improving and that is providing good margins for packers and so they will want to ramp slaughter back up.
Last week’s slaughter was only 484,000 head, down 45,000 from the previous week.
“That really didn’t help us, and that backs some cattle up here. So this big hole that’s coming could eventually get filled up with some cattle that we’re working into,” he adds.
Choice boxes were up $2.18 on Tuesday and Select was up $6.25 and that is helping give the futures a lift Wednesday as well.
Even though the funds are still holding on to a very light, long position or almost short in some instances, that doesn’t mean they’re going to get right back in to the long side yet.
Slaughter Ramping Up After ICE Raids
Last week’s slaughter was only was record low and down 45,000 from the previous week as workers did not show up for shifts in southwest Kansas packing plants due to ICE raids.
Monday slaughter was 90,000 but improved to 108,000 on Wednesday, so the plants are starting to get back online after the disruptions.
“I haven’t heard of any new ICE raids or anything like that. I haven’t heard of anybody being down this week as far as, you know, they won’t be able to slaughter or can’t slaughter,” he adds.
So Bumsted anticipates slaughter may be revised higher for the week and some plants may make up the lost time with a Saturday shift.
China Tariff on Brazil Beef Kicks In
News reports indicated Brazil’s tariff rate quota on beef imports into China had run out, so now imports will be subject to a 55% tariff.
Will that be an opportunity for the U.S. to sell some beef to China, especially with the 10% reduced tariffs announced as part of the Board of Trade?
Bumsted is skeptical. “I would like to say yes, but with the investment China has made in Brazil, it may be a little bit tough. I’m optimistic. It’s good news. Don’t get me wrong. Personally, I think it could be a little bit tough for the U.S. to get back into that market.”
Plus, he thinks Brazilian beef is probably still cheaper than U.S. beef, even with the tariff.
Brazil supplies China with half of the 2.8 million tons of beef imported into the country last year.
Feedlot Margins Pinched
While packer margins have improved, feed lot margins are pinched as the price of corn going up as well as interest rates and diesel prices.
“Feed yards and operating lines as far as buying cattle and things like that so that’s definitely something that we’ve got to take into consideration. Plus, fuel has been a big big chunk of this thing recently here as far as the feedlot margins go. So it is getting very tight out there and negative on some of these cattle.”
Are Hogs Close to a Low?
Lean hog futures were back down into contract lows on Wednesday after a short covering pop on Tuesday.
Futures have been struggling to bottom weighed on by lower cash and sluggish demand. Bumsted thinks it also has to do with money flow as funds are near record short.
“The money flow has been saying we want to be short this market and, you know. They’ve been selling new lows and we’re sitting back down here at the lows of the hog market right now. And I know everybody calls in saying, have we hit the low on the hogs? Have we hit the lows? And it might be worth a stab at it,” he says.
However, it is tough to call the low in hogs.
“We haven’t seen the cash index move hardly as far as these hogs go. It hasn’t moved much, but you’ve got this December versus February. I know that there’s folks looking at that as far as a bull spread, thinking December could come up here just a little bit. I do know a fundamental side of things here. There are some issues out there as far as some disease pressures and things like that.”
But he’s also hearing that the feeder pig brokers are calling around looking for homes for pigs as well, too. So there is an abundant supply. Plus slaughter figures continue to run over a year ago.
