Cattle futures were higher early Tuesday with hogs 2-sided. Grains were lower seeing report hangover.
Cattle Continue to Climb
Live and feeder cattle futures were higher on Monday with help from corrective buying and a 24 cent drop in corn prices. However, Brad Kooima with Kooima Kooima Varilek says strong cash has also been supportive. Last week’s cash was mostly $232 live in the North and $365 dressed, up $5. The South traded mostly $232 but there there instances up to $234. However, the 5-area weighted average steer price at $231.86, was up just $.18. Still, Kooima predicts fed cash trade will be higher this week as Yankton Livestock was starting out $2 higher. “And I think we have a packer that’s maybe a little closer to the knife, which I think should help,” he adds. The cash feeder market also continues to be red hot with the feeder cattle cash index at $369.13 coming into Tuesday’s session up $.50.
Cash HIgher This Week
Kooima says fed cash will be higher this week as packers are short bought plus the negotiated totals were extremely light last week. “There’s two categories, zero to 14 and 15 to 30 in the 15 to 30 day. And that would be cattle that are bought that aren’t going to get harvested
for 15 days or more. It was only 315 cattle. Usually there’s thousands in that. So I’m hoping that maybe that’ll mean that they have to try a little harder that
they don’t have quite as many cattle in front of them. So we’ll see. Based on the sale barn stuff, it looks like we’d have a shot at it this week. So short answer, long answer, yes, I think that we will see higher cash. “
Packers Cutting Kills
Kooima says packers are seeing margins in the red and cutting kills to compensate. “That seems to be a very popular theme that there’s many packers going to 32 hours this week, which I believe is caused by the fact that there’s not enough cattle to go around,” he says. The packer is not going to buy as many cattle but the result will likely rally the boxed beef quickly. “It’s started already,” he points out. Meanwhile, the Choice cutout values are discounted to the Select which he says is a signal of that tight supply.
Lexington, Neb. Plant Now Closed Shifts Leverage Away From Producers
As we reported on Friday the Tyson plant in Lexington, Neb. already closed on Friday or at least did not schedule any shifts for this week after an announced closure for Jan. 20. Kooima says the closure of this plant will likely take leverage away from negotiated cattle producers in Nebraska as many of those cattle will go to Dakota City, Neb.
“Lexington was largely a formula -only plant. So a lot of these, all these cattle that we’re going from these bigger feed yards into Lexington now have to go somewhere else and that somewhere else is probably Dakota City which is 64 miles from where I’m sitting the closest plant they have. Yet we never sell cattle there almost never. I worry that what’s going to happen is that Dakota City will become a nearly 100% formula plant and that they now all of a
sudden you’ll have less price discovery because they’ll be out of the mix here in terms of buying cattle on a daily basis. So I hope I’m wrong, but I don’t
think I am.”
Feeders Continue to Lead Live Cattle Higher?
While live cattle futures closed lower last week the feeder cattle futures had a higher weekly close and continue to make new highs for the move. Will feeders be able to continue to lead and pull live cattle through chart resistance areas?
“Feeders have long been the leaders here. That’s been very typical of this whole cattle cycle. And that’s been, of course, largely influenced by an incredibly strong cash feeder cattle market. A feeder cattle, cash feeder cattle market that still is a significant premium to where the last futures price is. We’re going to be about $369 on the index today. And January feeders are at $362 .45. So, you know, the dragging the discount up continues.” He says as he looks at the charts he sees a bull flag or bull pennant, “So we need to break out to the top side of it, which I guess I think we will. And then maybe we can take a run at the highs.”
He says the tightest supply is coming in the next 60 or 90 days of the entire cattle cycle and the feeder cattle supply has been pulled forward due to the strong prices. “The guy that’s selling these calves loves the price, he can’t wait to sell them. And so I think, you know, the supply of feeder cattle is not going to be any big amount at all here going into the first quarter of the year. Typically isn’t any way in the north, but it’ll especially be tight, I believe. So, yeah, I think that, you know, to me, the fundamentals and the technicals align here for a chance here that we have one more leg up to go ahead and make a run, and test in those gaps that we left or maybe even taking out those highs.”
Lean Hogs Faltering With Weaker Cash
Lean hog futures traded both sides of steady early in the session but are seeing some pressure as the morning wears on. The futures are trading at a premium to the declining cash index which is dragging down the market. “The cash feels heavy, average weights way above a year ago. Domestic demand seems to be improving because of the price point that it is. But, you know, in terms of export demand, it’s not, it’s just not there. It doesn’t appear to be there anyway. And we have this much supply. You got to have perfect demand.” The lean hog futures saw a correction Monday despite lower feed prices after deferred contracts hitting new contract highs on Friday. Kooima says futures are trading below the 20-day moving averages for the first time in a month, which is a poor technical sign for the market as well.
Grains See Report Hangover
Corn and soybean futures are lower early Tuesday still digesting the bearish data from USDA’s January reports which raised corn yield to a record 186.5 bu. per acre and production to a record 17 billion bu. The key will be whether or not March corn can held the low from Aug. 12 at $4.10. Kooima think there’s a chance because at that time the market was absorbing an even bigger shock from USDA’s 188.8 bu. yield estimate. And corn has to stop going down he says to hold soybeans intact, even though the report was less bearish and there has been some China buying.
However, he says the market is frustrating for producers. “I have great empathy for the grain guys here. Typically when the USDA starts to shrink that yield, they keep doing it. And it takes till January to figure out how many acres, really, huh? So I’m frustrated too with the methodology of it.”
