Ag markets were lower early Friday, except cattle.
Cattle Bounce, But is the Recovery Real?
Cattle futures were higher again on Friday morning after a strong finish Thursday with lower corn and improving cash news.
The question is was the bounce just short profit taking heading into the holiday or does it have staying power technically and fundamentally?
Scott Varilek with Kooima Kooima Varilek says the market is very oversold and due for a bounce but the long term charts have been damaged.
“Once October became the front month on the continuation chart, we’ve got a gap lower below an uptrend line, and that’s a little scary-looking chart. So what needs to happen is October just needs to find some life here to try to get in the upper teens to try to close that gap here, which is possible that that could happen. Those gaps, you usually don’t measure from them unless it’s held for a couple of days. And in this case, a couple of months. So this fourth quarter is important to make sure we clean up some of that damage to see if we can find somebody interested technically to look at buying these markets here,” he explains.
Cash News Improving
What would help solidify a bottom is higher cash and cash news has been improving slightly as the week has progressed.
Thursday bids of $216 were offered early, then a regional in the North jumped to $218 which is now being passed and the South has seen bids of $220 that were passed on.
However, not all packers are aggressive. “We’ve got some issues, some packers that are dark saying coolers are full. And then that could be the case. Not sure,” he says.
JBS in Grand Island, Neb. was one packer that was dark on claims coolers were full but is it smoke and mirrors to pressure the cash?
“We don’t know. You never know that that’s what you hear. And maybe there’s partly some truth to that just because we’ve got this beef coming in from imports, the Trump beef coming in 300,000 metric tons. So there could be some of that, you know, just logistical issues for those guys as they’re trying to bring a bunch of beef on the market. Hey, hold off on sending this for a second here while we jockey here. So I think it’s just
some effects from that would be my opinion,” he adds.
DOJ Probe of Retailers
The cattle market is still headline driven and the Department of Justice has launched a probe into the top eight retailers for price fixing and keeping retail beef prices highs.
Varilek says it is not a market mover but it falls into the administration’s efforts to lower beef prices and it frustrates producers.
“The part that’s frustrating to us is the market is fixing itself we we’ve had some drought issues so we haven’t been able to rebuild as fast but if you if you back up you know to 2020 I mean, that’s your highlight. Hopefully they look that far back when you had record high beef prices and we were looking for government handouts, and it was obvious that there was some big price gouging that was happening there. So maybe they’re looking into that,” he says.
The other frustration is cattle producers don’t want government intervention.
“One of the last real free markets, you know, you know, capitalism is what’s ruling the cattle market. And the more that the government dives into it and looking into this and bringing and be trying to fix the prices, you know, that’s that’s hard for us to swallow saying, hey, I guess we’re heading down that consolidation road, you know, as the government is looking to take over some of this. So will they find something on the DOJ investigation? Yeah. Yeah, maybe. But are we sitting here cheering or hoping? I don’t think so,” he adds.
Ranchers First Initiative
USDA this week also released their Ranchers First Initiative to help rebuild the cattle herd.
Again, Varilek says the market is already fixing itself regarding heifer retention.
“There’s huge incentive to do it. We were getting $3,000 for a calf. I mean, what more incentive do you need there? We’re going to try to raise more cattle if we know it’s profitable. But now that we see all of this. all the hands in the market and all the government involvement. I mean, I’ll see some guys that’ll just throw up their hands and say, geez, I guess they don’t want us to stay succeeding. So I don’t want to go back down that path of liquidation again,” he states.
The initiative had a heifer retention incentive included as part of LRP but contained no specifics.
“For us that sell LRP. You know, it seems like we’re some of the last ones to know what’s going on and not sure that that’s something that’s needed, you know, that for me. Yeah, it’s that’s just more involvement from them and to create incentive for us on that. I mean, that that’s that example that can’t farm without this subsidized insurance. Now we’re waiting for government checks and I don’t want that in our cattle industry. We’re still free and the market will fix itself,” he says.
MCOOL?
The Trump administration’s move to also lower prices by bringing in another 300,000 metric tons of tariff free beef imports over the next 90 days has also outraged producers and MCOOL has resurfaced as a result.
President Trump is signing some presidential executive orders on Friday with some speculation the administration will throw its support behind MCOOL.
So will it be a good thing for the market or not?
Varilek says it doesn’t have a big market impact but from an industry standpoint there have been a growing number of people that want beef to be labeled.
“I’m very proud of the beef that I raise and the quality that I raise. I think they’re some of the best in the world. And I would love to have my stamp USA on that beef there. So I think that traction is there. The NCBA has never joined that fight. But I think within the organization, there’s plenty of people that have. And now that you have all of this beef coming in, it was just that much more traction for it. So right now, the pan is hot for a lot of the industry that wants it labeled. And maybe we’re going to get something done,” he says.
Does it have to have a market impact from the perspective of improved demand? Varilek says that will take a while to kick in.
“I just don’t know that it’s something we’re just going to flip a switch on and see a big boost here. No, probably won’t have a big market impact.”
Hogs Retreat
Hog futures were lower again on Friday after a lower close Thursday. Futures ran into chart resistance and saw some profit taking.
However, cutouts were also down $4.50 coming into the session with a $32 drop in pork bellies, which was also a drag on futures.
“It popped up real fast on these hogs. And now we start to be a little bit sluggish. Yeah, I think bellies down $32 yesterday does not help. So some weakness in the cutout. It tried to rally, couldn’t do it. So it still feel like there’s not a lot of life there. The only upside is, is these guys filling barns are now, you know, finding some isoweans half price compared to several months ago here.”
Grains See Profit Taking
Grains were lower to start Friday with profit taking heading into a three-day holiday, plus continues headlines of efforts to get a peace deal between Russia and Ukraine.
The market may also be starting to see some hedge pressure as the heat is pushing some early harvest activity.
“We have not experienced, much harvest pressure. I think we were all expecting it. But then these funds got record long and it’s been been a great run. It’s been fun. And I think that yesterday’s break, followed by a rally, that’s just the funds defending. So it’s good to have them on our side. Did not think that this thing had to run out of gas yet,” he says.
However, harvest pressure is combining with the lower wheat market to provide a reason for traders to take risk premium out of the market.
“They were shooting missiles at each other just not very long ago so that that’s kind of the wild card factor and we don’t get to know anything about that what’s going on until it’s already starting to get put in the market. So, that’s our risk of pushing it lower,” he describes.
Still he thinks the funds will defend their longs because there is too much variance in yields and uncertainty about the impact the high head and dry conditions in some areas had on the crop. Plus, demand is strong.
