Ag markets were mostly lower early Friday, except cattle.
Cattle Bottoming?
Cattle futures were higher early Friday with follow through buying after a higher close Thursday.
Futures are trading back above key support areas on the charts so is the correction over?
Scott Varilek with Kooima Kooima Varilek says $243 was the line in the sand for the June live cattle or funds would liquidate.
“Well, we tested it. We broke it. Broke some short-term trend lines. So it was a little bit dicey for a minute. But then we were able to recover. I think it almost got to a spot where we’re saying, okay, we have some damage. Now what? What’s the follow-through? And then it just, kind of started gaining confidence slowly, able to close higher yesterday following through today,” he describes.
He says the market was overbought and due for a correction so he’s hopeful that has been completed especially since May is a strong month for beef.
Wild Ride Thursday
Thursday was the real test for the market for feeders as they went limit down for a time on talk that the beef plant in Fort Morgan, CO was not slaughtering cattle as workers walked off the job and were going to strike.
Varilek says the plant slaughters over 4,000 head a day and that story is still not fully confirmed.
“Yeah, and we’re all trying to find as much information on that as we can. And just like the last strike, hard to find it. It seems to be a little bit quieter. But yeah, they actually walked out at Fort Morgan and they canceled some loads, canceled their Thursday, Friday kills was what I had heard. And that they were planning on getting together with some talks. They were confident that. They might not take that long, you know, so that’s where we sit. More uncertainty, you know, thrown into this market. That’s one of the reasons that we really crashed.”
He says they will watch for developments over the weekend and see if there are still loads heading to the plant or not for clues.
“So if I would say right now, we’ll trade it like it’s more short term and not break the market because it isn’t a long term thing,” he adds.
Market Recovers as Rollins Cancels Arizona Event
The cattle market recovered well off the lows and closed back higher on Thursday on news that Brooke Rollins, Secretary of Ag, canceled her trip to Arizona on Friday alleviating the fears she might make an announcement about a reopening of the border to Mexican cattle.
He says, “The reason we’re able to recover maybe was because, you know, she had said no announcement last Friday and that she planned to physically to go herself to Arizona to you know, check things out. And so then we just kicked that can down the road.”
He says there have been more screw worm cases 60 miles south of the border which may have caused USDA to reverse course or delay a reopening.
Fed Cash Market Lower
The fed cash market was also pressured by this week’s lower cash trade at $246 in the both the South and North, plus some $386 dressed trade. Those are all $2 lower than the previous week.
However, with the board rebounding any additional cattle will likely be bought at $248 as producers have regained leverage.
“Packers were a couple dollars lower they’re sitting at $246 and not really moving just letting cattle come to them. I mean a few sales but now that this board has recovered some I think they’ve got what they’re going to get at $246 and if they’re going to want some they’re going to
have to start to move it up to $248, $250. There will still be plenty of guys that that want to get that,” he explains.
He says the market is just finishing up on yearlings. “You know these long day fed yearlings that you know we’ve had we’re not usually selling yearlings here in April but that’s the nature of the beast right now as we know how to make them bigger we’ve got cheap cost of gains the feeding weather is outstanding just these huge gains on these cattle then we’re going to crawl into that calf crop and they are not going to be carrying the weight that these yearlings were. So, that’s the thing that I alluded to about May that there’s always that old saying, never be short June cattle in the month of May.”
With Mother’s Day coming up he says demand will also be strong and so packers may need to move cash up.
Cattle Resilient
Varilek also points out the cattle market has been resilient through war headlines, the down in the stock market and even higher gas prices at the pump.
“We’ve talked about all of these other stories and I don’t know that war premium or the energy prices has really crept into the beef. I mean, we wouldn’t be trading cash cattle $4 off of the all time high if we were worried about the consumers, really getting strapped.”
Lean Hogs Bottoming?
Lean hog futures were lower on Friday with some profit taking after a mostly higher week but is the market bottoming?
Varilek speculates, “Yeah, we finally saw the cash and the cutout jump a little bit, provided us with a gap higher after the third leg lower, kind of been on the lower trade. That was some good action. It’s like, okay, maybe some respect, I guess,.”
But he points out numbers will really need to tighten for the market to justify the premiums in the deferred futures.
“We do see some of these deferred markets trading stronger than the front. We’re waiting on the cash. I think you get to July and August and they feel like, yeah, we want to rally. We think that we should. $135 to $150 feeder pigs you know weighing 40 pounds I mean these are big prices that you’re having to pay if you want to fill those barns and so that keeps telling us that the supply is tight, it’s not there we need higher prices,” he adds.
He says the May contract is at a pretty good discount to June and that gap usually narrows but it hasn’t happened yet.
“So, the proof has not shown up yet to get this cash market rally, to, you know, prove me right.”
Grains Mixed to Lower Trading Weather
Wheat futures broke out to some fresh highs on Thursday on drought and frost concerns but is setting back early Friday on profit taking and some rain chances in the extended maps.
Corn and soybeans are easing with wheat but are also waiting for more direction on weather according to Varilek.
“I think we are just waiting. You know, what are these weather patterns? There’s areas that are getting lots of rain, too much rain. And then there’s others that are just it’s so dry we’re having dust bowl weather. So, you can find what you’re looking for in the weather right now and that’s typical every year,” he says.
Ultimately he thinks the crop will get planted and it is too early to get concerned.
So beyond weather the grains will need another story and right now the war and inflation news could spark buying but just not yet.
