Cattle and hogs were mostly lower early Friday with grains mostly higher ahead of the USDA reports.
Cattle Crash on Fear of Mexican Border Reopening
Live and feeder cattle futures were sharply lower on Friday after closing sharply lower the previous session with $9.25 limit down moves in the feeder cattle.
Scott Varilek with Kooima Kooima Varilek says the funds continue to liquidate their long positions on the fear of the Mexican border reopening. There has been no announced date for resuming trade but he says that’s the problem. The uncertainty of when it will reopen is creating a risk off environment for fund traders.
USDA Secretary Brooke Rollins was in Mexico on Thursday and announced a new sterile fly dispersal facility to combat New World Screwworm (NWS) in Tampico, Mexico. That headline garnered negative reaction in the cattle futures. Rollins says the border is not reopening but also says she is in discussions with Mexican officials to set a protocol to allow trade.
Lower Cash Cattle Trade
The other news melting down the cattle futures on Thursday and Friday is the lower cash trade in the fed market. Some $228 traded in the South on Thursday, down $3 from last week. Northern trade has also been lower with the volume at $351 dressed in Nebraska, down $8. Varilek says on a live sale basis in the North trade started the week with a regional at $226 but by Friday the bids had drifted down to $222.
“Producers have lost their leverage in the market and packers are using that to pay lower money. They seem to have enough inventory around them for the present time. Plus, the weights are starting to creep up and there are some packers talking about discounts,” he explains.
Brazil Tariff Talk
At the same time the Trump administration has announced they are working with Brazil on a deal to lower tariffs on some food items like coffee. While beef wasn’t specifically named Varilek says that is also a concern. “Brazil was our number one beef importer until we put the additional tariffs in place,” he says. Most of the imported product is trimmings which is blended into ground beef and helps keep those prices down.
Increased Argentina Beef Imports?
The White House on Thursday said the U.S. and Argentina “have committed to improved, reciprocal, bilateral market access conditions for trade in beef.” The Trump administration is looking to provide relief to U.S. consumers on the heels of elections in which Republicans suffered losses with an electorate increasingly focused on affordability. The were no specifics but it just adds to the bearish headlines according to Varilek.
Uptrends Still Intact in Cattle Markets
After limit up closes on Monday there was hope the cattle market was starting to bottom but now there is a possibility of lower weekly closes in the futures again this week. While there has been short term technical damage done to the charts, Varilek is still holding on to the one technical signal that is still intact, the long term uptrend line.
Lean Hogs Struggle
Lean hog futures, like cattle, started the week with strong technical buying and some positive reaction to the government being reopened. However, that market has taken back those gains on technical selling, plus six month lows in pork cutouts and the Lean Hog Index. However, the lower cattle market is also spilling over.
Grains are Mostly Higher Ahead of the Report
Grains were mostly higher ahead of the USDA reports at 11:00 am Central Time. Corn and soybeans made new highs for the move during Thursday’s session and to keep that going the bulls will need some help from the reports according to Varilek.
