Cattle futures opened higher Monday then turned mixed, hogs were trading two-sided. Corn and wheat higher, with soybeans lower.
Cattle Digest Bullish Cattle on Feed Report
Cattle futures opened higher on Monday after ending well off session lows Friday and with help from the bullish USDA Cattle on Feed Report released after the close.
Brad Kooima of Kooima Kooima Varilek says the placements were 11% below last year and a bullish surprise for him and the trade. It is also the lowest on record for July since the series began in 1996.
“Texas was the only state that placed a good number, 100%. And I had heard that it was going to be more than that. But Kansas down 14%, Nebraska down 14%, Iowa down 17%, Colorado down 23%.”
He says there are less cattle but the combination of higher corn prices and the extreme heat and cattle death loss were the main reasons for the lower placement number.
“And comparing to a low number last year, you know, we were in the right in the beginning of phases, the middle of the border being closed,
which, by the way, is open today,” he adds, “You can extrapolate how many cattle on feed for 150 days and longer, and that’s near record, too.”
At the same time the nearly 2% higher on feed number has many producers perplexed, especially considering the light placements.
He says, “It’s because we’re feeding them longer and longer, and we’re doing that consciously on all the cattle. And then I think the other factor is that you’ve got an increasingly big number of beef on dairy on feed, and they’re on feed for a lot longer than a normal, you know, traditional English bred 14, 15 months. And so they just keep getting counted over and over again.”
Markets Try to Recover From Trump Beef Plan
While the futures started higher there is concern about the ability to hold with the negative backdrop of President Trump’s plan to lower beef prices by 25%.
That news sent the market sharply lower on Friday as the plan includes bringing in ground beef imports for the next 90 days duty free.
Kooima says the volume equates to about a couple of weeks work of product.
“So, we’re talking about 600,000 pounds of grinding meat from somewhere. Brazil is the only country that I can think of that falls into that quota category that he talks about, you know, that are over their quota. So they’re getting the extra tariff. And then which vendor, which retailer is going merchandise this thing? Let’s just say Walmart. How’s this logistically going to work?”
Beef Plan Won’t Work
Kooima says the logistics make no sense and this won’t have the desired affect of lowering retail prices.
“Philosophically this is such poor strategy please Mr. President, Secretary Rollins, let’s let’s find some advice here that’s a little bit farther thinking. This isn’t going to change anything. If anything, it makes it worse. We are rebuilding our herd, okay? 103% heifer retention.”
He also points out beef prices were already coming down and had been since July 4th so the market was already taking care of the problem on its own. “The way the market functions. It goes to a price high enough where you start to use less of it, okay? So just leave it alone. That’s what I think.”
JBS Canceling Contracts?
Rumors also circulated on Friday that JBS was canceling some cattle contracts as a result of this beef plan.
Kooima says he heard the same thing but had no confirmation.
“The packers, and not just JBS, the packing industry generally you know they’re kind of spoiling to get even here they’ve had a couple years of tough sledding,” he says.
Kooima added that it reminded him of the late 1990s after the hog market debacle and producers were talked into raising cookie cutter hogs for packer formula deals only to have the packer move the goal post on specifications.
and some of this reminds me so much of the late 90s because I went through the hog debacle where all of a sudden we all get talked into this deal that okay we’re all going to raise this kind of a pig and it’s kind of we’re going to have this formula deal for them and then it’s going to be like you know rainbows and butterflies,” he says.
“Beware, I cannot confirm that that’s the case, but I will be working on it. Maybe by the next time you and I do this, I’ll have more information.”
Border Reopening Today
The news coincided with the border reopening to Mexican cattle at Douglas, Ariz. today.
Kooima says around 700 head have been inspected to move across through that port even though there was a recent detection of New World Screwworm (NWS) in Sonora.
He says the bigger issue for him is there have been only a handful of cases and no cattle have died.
“You know, there’s protocol. Let’s figure it out. This whole, they took too long, in my opinion. And I’m not a packer fan, as you know. But, you know, this loss of infrastructure here in the U.S., and now we’re going to fix it by selling beef for 25% less. It’s a joke.”
Technically Cattle Charts Beat Up
Technically the cattle charts are hanging by a thread. Friday the futures gapped below the six-year long term uptrend lines and then closed back above those levels.
However, Kooima thinks the market is still vulnerable and the negative news is not fully worked into the futures.
“We’re doing damage here. We’re on the backside of this big bull market. We’re losing some leverage here in the country. The technical side of the market, the long speculators, he’s tired of all this stuff, right? The news, you know, I’m going to go on strike. I’m not going to go on strike. I’m going to close the plant. We’re going to open up the border, then we’re not,” he explains.
So the futures in his opinion are close to flipping the trend and the funds are pushing short.
“If you look at a weekly or a monthly chart. The October cattle are like five or six dollars below the August. And August is going to go off here in a few days, right? So if we come off like this, we are very definitely going to break uptrend lines that were established with the COVID low, March of 2020. This big, long, gradual uptrend line, uptrend that we’ve been in for six years on a chart is going to be broken. Now, does that mean we have to go back down to $175? No, I’m not implying that at all. But the uptrend stops.”
Producers Lost Cash Leverage
He says the problem is the producers have lost leverage to the packers and the industry needs clean up some cattle fundamentally.
“And hopefully we see a packer that’s more aggressive. There is a lot of Saturday kill that’s been put in this week. That’ll help. Let’s get that slaughter up there. Let’s move some of these cattle. And maybe by the time we get to October, then we’ll have gotten through the worst of it. I
still think that there’s a supply side reason to be friendly for the first quarter. But we got to get there.”
So, Kooima thinks the cash cattle market will likely be lower again this week.
“The South was disappointing, $226. That was actually $2 lower for the South. The North did a better job of selling cattle last week.”
Hog Charts Look Weak
Lean hog futures opened higher with cattle but quickly sold off.
The funds are now back selling and pushing the short side of the market and got reinforcement last week from the lower weekly closes.
While October is at a discount to the cash index and looks under valued and that situation gets even worse for the December contract, the market can’t get any traction and December hogs are a fourth of the price of December cattle.
The tariff talk with Canada is actually a little friendly as long as it doesn’t bleed over into a problem with Mexico, the top export customer for U.S. pork.
Corn Makes Contract Highs
Dec corn futures made new contract highs in the overnight session hitting $5.22 1/4 with the push from lower yields in Pro Farmer’s final estimate of 172.3 bu. per acre.
So how high will prices go now? Kooima says, “I’ve got $504.5 marked off here, and that’s a weekly high, so that’d be for the front month. That’s September corn. We had a high of $4.98 overnight. I had a loose target of kind of %5.20-ish on the December corn already.”
His concern is that USDA numbers can take a long time to catch up as he gives the example of the debacle in 2019.
“So, you know, while I think we’re going to see reports that show decline in the yield, I worry that we’re a little too far ahead of ourselves here for now. So let the market settle down a little bit. I’m hoping we can get on top of $5.05. I can see a way chart-wise where you can make an objective of $5.90. Wouldn’t that be fun? But we’re not quite able to call it that yet.”
Soybeans Fall
Soybean futures were trading in the opposite direction with Pro Farmer raising yield .6 bpa from the August NASS estimate.
However, Kooima says corn can’t continue to go up without soybeans eventually following.
“But, boy, they trade heavy today. Yeah, they are. We’re all good, but the bean thing is struggling a little bit. We need a little boost there. I think the perception is that some of this late rain has helped some of the beans. I don’t know. Stuff’s starting to die around here. I don’t think the beans will run away in my neck of the woods either,” he concludes.
