Grain and hog futures ended lower on Friday with a big rally in cattle futures.
Soybeans Make Fresh Lows
Soybeans made new lows for the move on Friday and ended the week losing another 27 cents on the March contract. Scott Varilek with Kooima Kooima Varilek says the soybean market saw technical selling but fundamental pressure came from the favorable weather in South America. Brazil has been getting rains and is on pace to have a record crop he says.
Weak Exports Also Plague Soybeans
Soybeans are also seeing liquidation by long traders as the export pace is running at a 14 year low with year to date sales at 986 million bu. and down 32% from last year. Varilek says this will be difficult to make up even with China fulfilling their entire purchase commitment. “I think the market got caught up in these trade deals and the idea we were going to get them done and we’re going to move some beans and then to hear those kind of low numbers. It’s it’s a little bit depressing. And now it’s like, okay, what else can come out of these trade deals,” he says.
Will the October Lows Be Tested in Soybeans?
The March soybean contract is on its way to testing the October lows which for the March contract set at $10.28 but Varilek says that is possible. “We broke out of the bottom side of the charts and so now we have the October lows kind of in sight. You know they’re not too far away. We’re through all the retracement levels, so I could see a little bit of a magnet effect for for that.”
Corn Sideways Until the WASDE
Corn futures were lower in tandem with lower soybeans and wheat futures and ended 12 cents lower for the week. While the March contact took out $4.40 support the bigger support area is at $4.35 which coincides with the bottom end of the trading range corn has been chopping in. Varilek expects this area to hold through the January WASDE. “We just don’t have enough positive momentum to get through the top of the charts even with strong exports and the lower yields expected in the January report. That’s because we continue to linger around the 2.0 billion bu. mark on ending stocks,” he explains.
New Year Fund Reallocation?
Could corn or the rest of the grain complex see some new money at the beginning of a new year on portfolio reallocation by the funds? Could they move money out of over extended precious metals into low valued grain markets? Varilek says it is possible but the evidence of that won’t be seen until after the first full trading week of the new year which volume is re-established.
Cattle Futures Break Out to New Highs
Live and feeder cattle futures made new highs for the move on Friday and had higher weekly closes. Feb. live cattle were up $6.35 and March feeder cattle futures gained $12.53 for the week. This came on the heels of stronger fed cash trade with mostly $232 live sales, up $2 to $3 from last week, in both the North and South. Northern dressed deals were also at mostly $360 to $362, up $4 from last week’s weighted average.
However, he is looking to the cash market for feeders as the real leader. “This cash market is is the lead dog for me right now. I mean cash feeders first that’s what really led this market, to where we got to this last year and that’s where we’re going to be looking again as we get into next week and start to get some more numbers,” he adds.
NWS Case Sparks Rally
New World Screwworm cases in a newborn calf 197 miles from the Mexican border and a case detected in a goat also helped to spur some buying interest in the feeder cattle futures with ideas it will slow the reopening of trade. “Just the fact that there’s still some cases down there maybe this reopening of the border doesn’t happen right away, you know, we were kind of thinking we were probably pretty close. Maybe you just kind of kicked that can down the road. And it could tell some guys, let’s get back into the sale barn and,get some feeders bought,” he adds.
How High Can Futures Rally?
Feeder cattle futures filled the gap area already on Wednesday and closed above that area which attracted some technical buying on Friday. The rally in feeders also finally pulled live cattle above chart resistance areas, including the 100-day moving average, which had kept the market sideways the last couple of weeks. So can the market continue to rally and maybe even retest the record highs from October? Varilek says technically feeders may try to fill the last gap area on the charts and if that is accomplished the highs will be in sight.
“It has the setup for it but just some of the worries that come along with it. Are we going to see some negative packer margins that are really going to affect this? You know, we’ve got Lexington closing. We’ve got Amarillo’s already gotten rid of their B shift. There there is some of that that you have to worry about yet, but it’s going to have to be the cash feeders that are going to have to do it,” he explains.
If feeders make new highs the question is do live cattle follow? Varilek says the cattle market could be getting into it’s tightest numbers. However, he’s not sure how much higher live cattle can run especially as cattle weights are heavy and he is seeing some signs of mild heifer retention.
Will the Funds Push the Market?
So if the market is going to return to the record highs it will take some help from the funds. “So there’s some of your hedge money, some of your fund money that’s available to look at that chart and say, hey, this thing still, has some potential to get back to some of those highs. So, uh, I think that there is a good room.” But he says January is a tough month for cash cattle to trend higher and it’s too early to talk about a spring rally.
Lean Hogs Stay Sideways?
Lean hog futures were lower on Friday seeing some follow through technical selling but still in a sideways range. Varilek says he thinks the market could stay range bound as it tries to absorb the increase in supplies the next six weeks. However, after that there may be some buying with ideas that disease will curb production.
