Cattle were higher early Friday with hogs and grain markets lower.
Cattle Bounce With Equities But Can They Recover?
Cattle futures found early strength Friday in tandem with the bounce in the equity markets and the pull back in the energy markets, according Scott Varilek of Kooima Kooima Varilek.
He says the cattle were in lock step with the S&P all week and have seen a huge an ugly technical correction.
Live cattle futures took out the 100-day moving average and are still trading below that level. So, after that technical damage how much recover does he expect?
“I wish I could really confirm that it bottomed here and we can start to recover. For me, we’re still looking at some retracement levels that are below us yet. I’m still a little bit more worried about that. Generally on Fridays, it’s been head for the hills. We got a weekend coming. We don’t know what’s going to happen overseas. You know, at least that that news is a little quieter today and the outside markets are holding their own. That’s what’s helping the cattle a little bit because Fridays have been doom and gloom.”
He says looking at retracement levels on the feeder cattle chart he thinks there is more downside risk.
“It looks like feeders have another $15 room from here before they get to a halfway retracement level. So your support lines are just looking like they’re a little bit a ways underneath us yet, and I think that’s a lot with the anxiety that’s wrapped up around this market right now.”
With Greeley Dark, is the Strike Fear Priced In?
The other anxiety has come from fear of the Greeley, CO beef plant strike on March 16th. However, Varilek says the plant has been dark most of this week and JBS has been shifted cattle to other plants to be slaughtered.
“Yeah, I think there was a lot of cooler clean out that was happening on Thursday and Friday this week. So the word that we had heard is that they were not running. So, you know, and they’re going to be dark on Monday. So I think this is already in the market.”
The key now is how long the strike lasts. He says the market talk is four weeks.
“You can hear plenty of different rumors out there on how long it could be. But what you do like is that, hey, we’ve got some packers that are getting in the black a little bit here. That’s going to help maybe incentivize trying to get it reopened. I mean, we’ve got spring demand coming on us hot and heavy. We’re what, a week away from the first day of spring. I would think that that might help out. “
Packers Pressure Cash Market
In the meantime, packers regained some leverage against the producers and that led to lower cash trade this week.
According to Varilek most of it was $235 live in the South, which is $3 to $5 lower depending on the location. Northern live prices were also at $235, down $5 from last week and dressed prices were at $372, down $8.
“They’ve (packers) been able to drop this cash market and we have some willing sellers. Once the cash market started to slip, everything’s starting to feel uncertain with war happening. As I had alluded to, we have large cattle, big cattle and a lot of those cattle hit the show list here in the North. So producers were saying okay it’s time for me to clean up,” he explains.
Choice Beef Prices Near $400
With higher gas prices and economic fears there has also been talk about how that is eroding consumer beef demand. Throw on top of that the fact that Choice boxed beef is nearing $400. However, Varilek says so far he is seeing no evidence consumers are backing away.
“It’s a little early yet. It’s a little bit nerve wracking that, yes, these energy prices shot higher and fast. So the fact that it went up so fast, if we don’t see any relief here, say over a couple of weeks, two, three weeks, then it could start to show up. But immediately, no, we’re not not seeing the effects of it right away, in my opinion there.”
Hogs See Profit Taking
Lean hog futures are lower again on Friday with profit taking and fund selling as the summer month neared the contract highs earlier in the week. Varilek says the futures premium to the Lean Hog Index got too wide and so there is a correction taking place.
He says the market has rallied on talk of disease concerns but the slaughter pace will need to slow down as proof of lower supplies.
“We need to see some proof now that these numbers are tighter you know because the cash market’s not rallying as fast as uh as these funds want it to. So, couldn’t get through and make new highs, just didn’t quite have the confidence to do it. We’re finding ourselves on a pretty good correction here.”
Grains Correcting with Energy Markets, Farmer Selling
Grain markets are lower in tandem with the correction in the energy markets early Friday. Varilek says with the big run up this week it is understandable to see some profit taking heading into the weekend.
However, there has also been some farmer selling that has picked up.
“It was a nice opportunity for farmers and what that did is you saw Dec corn get right near $5 and a lot of farmers saying wow i can’t believe i got that high I should be looking at some selling opportunities here. Hearing lots of questions about what do I do with all of my old crop, starting to move some of that. So a little bit of pressure from farmer selling,” he explains.
However, if the Iran conflict flares over the weekend and crude oil shoots back up, the grains will likely follow he says.
