Cattle are sharply lower Friday, with hogs trying to bounce. Grains are slightly lower.
Cattle Gap Lower on Fears of Mexican Border Reopening
Scott Varilek with Kooima Kooima Varilek says cattle futures gapped lower on the opening Friday and deferred feeder contracts quickly pushed to limit down status.
The market has been on shaky ground all week with Trump’s plan to lower beef prices but the latest pressure is coming from news the Mexican Ag Minister is coming to the U.S. early next week to discuss the reopening of the U.S. border to feeder cattle imports.
Varilek says that overrides this week’s news on the Trump administration’s plan to lower beef prices.
He says buying 80,000 metric tons of Argentina beef is not a big deal because its only 176 million pounds total and Argentina only slaughters 5,500 head of cattle a day.
Lowering the 50% tariff on Brazilian beef would also be negative as they are the top exporter of beef in the world and accounted for 30,000 MT of trim per day before the tariffs were raised.
However, Varilek says the event that would have the biggest bearish impact on the cattle markets is opening the border to Mexican imports of feeder cattle and that is why the funds are taking profits and liquidating.
“There’s this large supply in Mexico. That would be the one thing that would probably affect this market the most. So we’re penciling that in. I mean, that’s part of this now. We’re going to meet with them next week. We see Trump is serious about bringing beef down. And that would be one surefire way to do so, you know, bringing in those cattle,” he adds.
Will the Funds Liquidate Cattle Positions?
With the chart damage that has been done on the daily charts funds could continue to exit their long position according to Varilek.
“All of these short -term trend lines are getting broke. We have not had to, you know, fight that along this long rally higher. There hasn’t been, you know, many times where we are saying trend lines were broke and we’re breaking some, you know, on all of the short -term charts, they’re looking rough. That would definitely be a signal that’s going to tell funds, hey, let’s start unwinding out of here,” he explains.
However, he’s hopeful the futures can find support at the longer term uptrend lines on the charts.
“The long -term trends, they’re still way down there. We had a pretty steep climb here towards the end of this rally. So you’ve got a long -term, you know, monthly chart trend lined on there around $2. We’re still up here at $2.36. That’s a long ways to go.”
Can Cash Trade Bring the Cattle Market Back to Reality?
In the past the cattle market has been able to fight back after corrections due to the strong cash prices for fed and especially feeder cattle and calves.
So far the cash news this week in the fed market has been light with some Northern trade at $240 and dressed prices at $368 to $370.
However, Varilek is not sure this week if higher money is in the cards as the futures melt down will hurt the resolve of the feed yards.
Hogs Try to Bounce
Nearby lean hog futures are trying to bounce despite the sell off in cattle supported by some short covering and spread unwinding.
The December contract hit two month lows again on Thursday and dipped below the $82.00 support area.
However, Varilek thinks that market has fallen far enough it doesn’t have much more downside, especially with its discount to the cash index.
Grains See Profit Taking as Canada Talks are Off
Grains futures are mostly lower early Friday seeing some profit taking after a strong week and with corn and soybean contracts hitting some technical resistance areas on the charts again.
There may be some light harvest pressure in corn heading into the weekend as well.
Varilek says the news that President Trump has called off talks with Canada due to an anti-tariff ad they sponsored are also weighing on futures.
