Cattle and hogs were lower early Friday with grain markets slightly higher.
Cattle Futures Fall on Plant Closure Talk
Live and feeder cattle futures were lower on Friday with some profit taking after a strong week but also running into chart resistance.
Additionally, Scott Varilek with Kooima Kooima Varilek says the market is trading headlines that a JBS beef slaughter plant in Soderton, Pennsylvania was closing.
“A new updated rumor that there’s a plant in Pennsylvania that is, is it dark Monday for fumigation? Are they going to permanently close it? Just a, you know, a smaller 1200 head kill plant. So trying to digest what news that is. I mean, we’ve all been talking about what’s the next plant to close. We’re so tight on numbers. What’s the next plant? So, throwing another one in the rumor mill today,” he explains.
Hit Chart Resistance
The live cattle futures have also run into technical resistance around 50% retracement levels and Varilek is watching $245.22, which is the high from June 5.
Feeder cattle charts are looking better he says, “Their resistance is a little higher than here. They’ve been able to get through some of these moving averages in some of these spots, but live cattle have not yet. Still carrying a big discount to cash.”
Some traders are also just exiting ahead of the weekend because of the volatility of the market.
“It’s easy to take some of that risk off the table here as we go into more uncertainty on a weekend,” he adds.
Cash is Key
Futures are trading at a discount to the cash so if cash develops at stead to higher money it could bring the futures back up.
However, cash news has been quiet but Varilek thinks the packers need some inventory as they’ve been buying out for a month.
“So they’ve been getting supply in front of them consistently and now they’ve slowed down that pace not hearing any first week of July trade and i think our expectations are guys are asking higher. There are some chances we could get $260 in the cash market that’s still
there,” he says.
Carcass weights have dropped the last few weeks in a row as well.
“We’re crawling into the these Northern cattle that are calf feds they’re not quite ready our yearlings are cleaned up. So that could be
the packer trying to say hey we need to get some more weight on these cattle because the the killing a lot less numbers than we were even a year ago. We were tight last year. We’re tighter again this year. That’s still there. So they need the weight on those cattle to get
the pounds. So could be them trying to get some weight back on the cattle here.” he adds.
So, cash should not be lower according to Varilek and he says no one is ready to take lower money especially now that some of the negative headlines about NWS are behind us.
Test the Old Highs?
If cash trade is higher could the futures retest the highs? He says it is possible but the futures have been lagging behind the cash for weeks now.
“So it’s not a guarantee. Usually we get some of that higher cash. We might party for a minute, and then it’s viewed as. Okay, let’s sell this rally here. We haven’t been able to put more on and follow through from it. So I’ve been pretty disappointed in that action because, yeah, these were quite discount. We’re going to get June off the board here and August is going to look well below cash. And I think that’s that bull spread mentality we’ve had once we get to the front month,” he states.
Market Moving Past NWS Story?
The New World Screwworm stories have dominated the news cycle this week and nine cases have been reported as of Friday morning.
However, Varilek says the market is starting to move past this story because consumers demand has held.
“We are not worried about a consumer pulling back from beef. So that was our biggest scare. So for me, I can. I can almost start to move past it, and I think more people will. You know, the first calf case that we had, yep, the calf’s up and running around. They vaccinated their herd and didn’t have another case, and everything looks good. So it’s feeling like we can move past it,
to me,” he says.
The news media wants to keep running with the story but he says USDA has measures in place to release sterile flies and producers can vaccinate for it.
“And I think we have better technology now than we did in the 60s. Pretty confident. I think we’re going to be able to try to get some of this under control here. It’s just going to take some management, rounding up cattle more often and pouring. So I’m ready to kind of turn the page.”
Drought Still Lingering
Meanwhile, the U.S. Drought Monitor out Thursday shows 54% of cattle country and pasture areas are in some level of drought. Hay areas, over 50% in drought.
Hay prices shot up to $300 a ton and then cooled back down to $200 but producers are scrambling to find hay.
That will further tighten supplies and slow herd rebuilding. So, when will the market start trading that?
He says, “We don’t have this abundance of grass to keep these cattle out there all summer long. I think we’re going to keep having that. Well, I can’t rebuild as fast as I wanted to. So there’s still some struggles there. We’re talking about tight numbers this year, and it looks
like this is going to extend out for a longer period of time before we get a big supply boost here.”
Hogs Back Lower
Nearby hogs have continued to be under pressure this week on technical selling despite the funds being near record short.
The August and deferreds were up for two days but are setting back early Friday.
“So, you know, the funds had completely liquidated all of the longs that they had and entering into the short side and just riding this trend. And we always say it when hogs trend, they trend hard. So it’s been a disappointment from the producer standpoint because these guys are going to be losing some money seeing some red ink and fighting that death loss,” he says.
So, it’s going to have some implications long term, especially as feeder pig prices have stayed high.
Are Hogs Bottoming?
So are the hogs close to a bottom?
Varilek says, “We feel like $96 looks cheap but we know that it can go lower it can go below $90 in the summer. So, it’s not like these are prices we’ve never seen and they’re completely in the gutter. So, they’re still high enough and I don’t think that the demand for pork has been strong enough even with cheaper prices compared to beef.”
Grains Try to Bounce Pre-Weekend
Grains were slightly higher early Friday.
Corn and soybeans were lower on Thursday with corn making new lows on weather and the lack of bullish news in the WASDE>
So the market is seeing some short covering heading into the weekend as the futures are oversold.
Are the Lows In?
Farmers want to see the markets confirm a low but Varilek isn’t confident about that yet.
“It feels like it’s so low. It’s below cost of production. It doesn’t feel like the low is in to me. We had a report, grain report yesterday. That’s just a reminder, hey our ending stocks are pretty big. We’ve got a lot of grain around and that’s what we’re going to have to start
to look at. We’re getting adequate moisture so far,” he adds.
So he thinks the market could grind lower.
