Cattle and hogs were mostly higher early Friday, grains mostly lower except soybeans.
Cattle Score Reversal in Bottoming Action?
Live and feeder cattle futures were higher again Friday morning.
Scott Varilek with Kooima Kooima Varilek says the live cattle futures made new lows for the move Thursday before finding support and putting in key reversals.
So is this bottoming action?
Varilek says chart support held right where it needed to, “That’s the hope. It’s nice to have a little breath of air here it’s been quite the bloody trail and you know for me right where those markets held yesterday especially the October and December live cattle contracts you know from that previous gap lower it measured down $217 to $218.”
He says they hit so fast it was hard to react unless you had orders in already.
The long-term monthly chart trend line held as well for the August live cattle and the market was oversold and due for a bounce.
“Feeders didn’t quite make their extension, but not all of the months had gaps lower in the feeder market. So getting some nice recovery here. Looks like some short covering to me, you know, quite a bit of that. We’ve got guys that have had hedges on for two years, and this is the first time you’ve been really nicely ahead,” he adds.
Futures Shake Off Lower Cash
The futures market also faded lower cash trade at mostly $230 in the South, down $7 to $8 from last week and in the North dressed prices were mostly $365, down $12 to $15.
Fed cash trade has tumbled over $30 in three weeks as packers have regained leverage due to heat and have been cutting kills again.
“Yeah, its been $5 to $7 lower every week here for a while and just leaving one major out there to kind of set the tone you know with a low bid and everybody else just kind of lets them do that. We had a lot of packers that went slow and have a dark day here and used that to gain a little leverage,” he adds.
The basis has also narrowed during the last three weeks.
Boxed Beef Finding Support?
Varilek says beef demand has been rough which has also contributed to the weakness.
“They’re not getting the beef moving out very good. It’s that time of year as well. We usually get one good blip for Labor Day buying here about the second week of August. And when that little rally in cash happens, maybe next week or the week after you take that,” he says.
Because the end of August and beginning of September are sloppy markets for cash cattle trade he remarks.
Choice boxed beef is setting just about $362 and $360 has been pretty good support but is that market going to be able to bottom there or not?
Varilek says there are no guarantees even with Labor Day and USDA school lunch program buying.
Cash Feeders Catching?
The cash feeder market has also seen a big correction with the index now down to $350.72 which has narrowed the basis for feeders as well.
However, Varilek sees that changing as the tight number of yearlings start coming to market, which will attract higher prices and push the cash feeder index back up.
Feeders regaining leadership will also help stablize the market.
Funds Buying?
The one caveat is the volume or open interest was not up on Thursday’s rally which tells Varilek this is all short covering and the funds are not buying back into the long side of the market.
Report Positioning
The cattle market is also seeing some positioning ahead of the USDA Cattle on Feed and Inventory Reports.
The on feed estimate is 102.2%, placements at 98.8%, marketing’s at 97% but the inventory report will get more attention.
“We want to know what this cow herd size is, what is the heifer retention, because there is a big debate on it now,” he adds.
However, with drought re-emerging in some areas that may have thrown a wrench in some of the rebuilding plans despite good profits in the cow calf sector.
Hog Rally Extends
Lean hog futures opened mixed and then quickly rallied with fund buying and higher cash and cutouts well over $100 supportive.
Can the nearby hogs get through the next layer of chart resistance?
Varilek says the market is getting into some tighter numbers and weights have come down with the summer heat.
“We’re not getting the weight put on these hogs we’ve got another week of hot weather coming up and what I’m hearing that’s doing, with these hogs having to stay in the barn just a little longer that you can actually find some isoweans and feeders here now.”
This shift means pretty good prices up front but the deferred contracts are also catching up.
“I’m getting to that point where I’m going to start looking at some protection here for the fourth quarter here pretty quick as we’ve been able to put a little rally on there.”
Wheat Sees Early Profit Taking
Wheat futures were sharply lower early Friday with some profit taking heading into the weekend and talk of Ukraine looking at a deal to allow wheat exports to move through the Odessa port.
Corn was seeing some spillover, while soybeans were holding on to slight gains after making more new contract highs.
Varilek says profit taking could be short lived though with weather still looking threatening and the possibility of lower crop ratings in USDA’s crop progress report on Monday.
“We’re heading into a weekend. It’s a little bit of profit taking probably. We’ve had a nice rally here, but what I’m looking at chart wise is we had those gaps in those charts. It looks like $5.10, $5.15 kind of corn area, $12.95 on the beans. I think that’s achievable now,” he explains.
Those are now targets that he is going to use to make sales because he says there are still some good looking crops in the Midwest that had rain before the heat set in.
“So they made it through the heat better than expected. We’re going to have a crop. It’s not going to be an absolute wreck. Yep. Maybe we’re taking the 10% off the end, you know, during some of the fill stages here. But I do think we’ll have a decent enough crop. So I will be using that as an opportunity to sell.”
