Cattle, hogs and grains are all higher early Monday.
Cattle Extend Gains a Third Day
Live and feeder cattle futures are higher on Monday for a third day.
Brad Kooima with Kooima Kooima Varilek says some of the recovery is technical in nature as the June live cattle bounce off of key support and the 38% retracement level around $243.00 last Thursday.
Border Fears Subside
Part of the bounce also came as fears subsided regarding a possible reopening of the border to Mexican feeder cattle imports.
The fear started already on April 17 when USDA Secretary Brooke Rollins was in Texas for the ground breaking of the new sterile fly facility to help combat New World screwworm (NWS).
However, Rollins was also scheduled for a trip to Arizona on Friday, April 24 which renewed fears of an announcement.
So, Kooima says when Rollins said Thursday she was canceling the trip the market breathed a sigh of relief.
“She canceled her trip due to biosecurity reasons as you’ve got a case that’s supposedly was within 60 miles of the Texas border even though this port that she was going to go to out there by Douglas is almost 800 miles away from there,” he explains.
Cash Market Firms With Board
Following the recovery in the futures the feedlots started to pass on packer bids of $246 being offered for fed cash cattle.
Kooima says there was some trade at $246 and $386 dressed but by Friday some feeders in the North were passing on $248 as feedlots regained leverage.
“I certainly have a little more optimism this week on a Monday than I did last week for cash. I think there’s a real shot we can get back to $250. We shall see. But the show list up here, very small. And we’re in that kind of that in-between time, Michelle, where the yearlings are largely gone. We’re trying to push these calves to get fat and the weather’s been great. So some of them are pretty close, but you know, this holding action type of a deal that we’ve had for a while, I think this holding action rally here is going to continue until it doesn’t,” he says.
He thinks producers will be slow to sell when it costs $1 to put gain on and so he thinks supplies will be tight for the next 30 to 45 days.
Fear of Potential Fort Morgan Plant Strike Ease
Early last Thursday, the market also sold off on fear that workers at the Cargill beef plant at Fort Morgan, Colorado, were going to walk out. Kooima says the plant did not slaughter Thursday, Friday or Monday while negotiations were taking place.
“Supposedly they were going to return to, or they were going to start negotiations this week. What I do know is that it sounds like this is not a union backed strike, that this is what they would call a wildcat strike, which people are kind of voluntary. I say, Hey, we’re leaving, you know, blah, blah, blah. I’m not certain as to what. their demands exactly are what the beef is or what they’re trying to what they’re trying to accomplish other than I suppose the obvious, more pay less work,” he adds.
The plant has a capacity of 4,700 but is currently slaughtering only around 4,000 currently. Still he says the market has faded the news like it isn’t that concerned.
“It might affect that cash market, maybe that Western Nebraska, Colorado market, maybe more than anything else. But I’ll keep you posted. At this point, it’s kind of day to day. And I think the market would tell you that they don’t expect it’s going to last long. Otherwise, I think we’d be trading worse,” he says.
Plus, shackle space is at a surplus to available cattle right now softening the blow.
However, he says if boxed beef prices don’t improve soon to help get packer margins back in the black it could lead to additional plant closures.
“But unless this box beef catches here somebody’s going to have to drop again. I mean, the packer, that side of the industry is not just going to sit there and merrily lose $200 a head every day without closing another place or severely cutting this kill back.”
Funds Stay Long Cattle?
The latest Commitment of Traders Report indicated funds are still long around 135,000 futures and option positions and have exited about 1,800 positions as of last Tuesday.
So is there a fear that the commodity fund traders are going to continue to liquidate just because the market already hit the record highs?
He says, “You bet there’s a fear, at least for some of us, for me. That would be the gorilla in the room here. The fundamentals, really good.
June cattle, probably. a little higher priced normally than what they would be basis wise I think last year we were like $8 or $10 under cash. So if you get $248 and the basis was like last year you could have June cattle at $240 or $238. It’s not it’s at $247 okay with the last cash the best of the last cash at $248. Sp, is it that the cash is too low or are the futures too high?”
Hogs Bounce or Bottom?
Lean hog futures were higher Monday and had a higher weekly close last week.
So is the market putting in a bottom and how much upside is there?
Kooima says, “Hog charts have a nice looking formation, you know, had that big outside day down where it looked like they were in a wreck on Thursday, came back gap higher last week and just barely by the skin of our teeth, we’ve been holding that gap, which is good. So I would like to get us above $103.70, above the 20-day to make me feel just a bit better about it.”
He says feeder pigs are running nearly $140 a head, which is a function of tight supply creaated by another round of big-time disease problems in some of the farrowing units in the North,” he explains that has him a bit friendly.
Grains Rally, Corn Makes Fresh Highs
Grains were higher early Monday with old crop corn making fresh highs for the move.
Corn has received some help from the weather rally in wheat but may be trading its own weather concerns with heavy rains over the weekend in some key production areas of the Midwest.
“And get used to it. This is what you and I will be talking about for the next three months, right? Whether it did or if it didn’t, or did it rain where it’s supposed to.”
However, he is not overly bullish due to the large carryout and poor basis in the Northwestern Corn Belt.
“So we’re right at halfway back on the July corn on this last move so that we’re going to learn a little bit about the market right here, I’d love to see the basis tighten and it usually is tightest when guys are out in the field worried about planting corn they’re not sitting by their grain bin loading corn,” he says.
Soybeans have been sideways for the last six weeks says Kooima, and he thinks the crude oil and bean oil story is about running its course too.
“I don’t know how far you can stretch that rubber band. So a long way to go here. We got a long growing season and we’ll see once,” he adds.
