Grain and livestock futures were sharply lower to start Monday.
Cattle Crash as Mexican Border to Reopen
Live and feeder cattle futures both saw gap lower openings with word from USDA late Friday that the Southern border would be reopening to Mexican livestock imports on Aug. 24.
“It’s kind of peculiar that they would announce that on a day where you have an on-feed report where you cannot do LRPs either. So maybe it was time. I’m not sure. I didn’t say that, but that’s kind of what we got going on here. This morning, gap opened lower. Trying to recover. Well, we’ll see once what happens. Forward spreads are kind of working, which makes sense in this marketplace right now,” he explains.
Border Reopens in 30 Days
The procedure for reopening the border will be staggered with the Douglas, AZ port being the first to accept cattle, followed by two New Mexico ports at some unspecified time to follow.
Each animal will be inspected before coming across as established by USDA and Mexican officials last year.
Kooima says, “It’s going to happen in phases. How many numbers we’re going to have I don’t know if we have all that data quite yet but if things go well we’ll phase in into another one. This has been not necessarily been a worry in the marketplace, but it’s just like, it’s a matter of when it’ll happen.”
Market Impact
Kooima says this does matter to the market because Texas feedlots have been struggling for the last 19 months without the close source of feeders from Mexico.
However, there may not be as many head that coming into the U.S. because they have ramped up their feeding and processing capacity in Mexico over time.
“We’ve basically given Mexico a quick lesson on how to grow fat cattle down there and then they can ship us the beef down there. But Texas cattle feeders have made their voice known the last six, eight, nine months.”
At the same time Texas cattle feeder were pressuring to get the border open because of the monetary cost to their industry but have to balance that against the impact of getting New World Screwworm (NWS) in the state.
“So it does matter to the marketplace that this is going to reopen the prices are going to reflect that because there’s plenty of some family operations down there in the feedlots that they want their business back and it’s going to probably look a little bit different moving forward. They’re probably not going to get the three weight, four weight, five weight type stuff there. Maybe it’s going to look more like eight, nine weight that comes across the border in phases,” he adds.
And all this will impact market values.
Who Know About the Border Reopening
With the $25 to $30 break in the live cattle futures and a $30 drop in the fed cash market in just three weeks it may look like someone knew about the border reopening in advance.
Kooima is discounting that theory.
“I would be in the camp that would say probably not. I don’t think so because we can talk about the big breaks that happened before, you know, boxes breaking, demand suffering, all that type of stuff. So I’m not entirely, I know where producers are coming from, but I wouldn’t be putting that camp quite yet.”
Will the U.S. See 1.2 Million Head of Mexican Cattle Annually?
The argument can be made though that the U.S. will not see the full 1.2 million head of Mexican feeder cattle annually coming across the border anymore.
Kooima says, “You can tell by, looking at their export data for beef. I mean, they’re climbing pretty good. And you’re right. Percentages are going to be quite a bit lower. I think it was about four percent of the year of the kill came from Mexico, that 1.2 million head in 2024 i believe. That’s going to look entirely different.”
How Low Will Cattle Prices Fall?
So how low do cattle prices need to fall to price this change in, especially after the recent large correction in the market?
Kooima is not ruling out some big moves just because of the market was maybe too high in the first place.
He says, “The market should not get get crushed as hard as we are. But unfortunately, it’s going to have that stretch of a rubber band. It’s going to have a snap back type mentality with it.”
So he says technical support may be further below the market. For live cattle he says there were some gap measurements last week in the October and February contract down to $217 to $218.
“To have this news come out now with the market extremely oversold like we are in the first place, sometimes that market could have a little bit better chance of getting out of here a little bit quicker. It’s better to happen now than when stochastics, right, it’s like 50%.”
For the feeders there were gaps left two Tuesdays ago, not in nearby contracts but the deferreds which measure down to $320 for the October and $317 for the November.
Markets Fade Reports
The news came on the heels of the USDA Cattle on Feed and Cattle Inventory reports.
All cattle and calves came in at 94.2 million head, just a 0.2% increase in inventory year over year which shows that expansion is still slow.
Kooima says they are also questioning the impact of beef on dairy on the numbers as milk cows were up 2% from last year and dairy replacement heifers were up 3%. He says this is skewing the numbers.
Cash Pressure Again?
Cash cattle trade was sharply lower again last week with live traders at mostly $230 up to $232, down $7 to $8 and dressed prices at mostly $365 were down $12 to $15.
Kooima expects continued pressure even though some packers in the South were bidding $231 or a dollar better on Saturday, showing some improved interest.
Still, he thinks boxed beef needs to stablize before the cash market can bottom.
Right now packers also have the leverage due to the heat.
Lean Hogs Break as Well
Lean hog futures were also lower on Monday caught up in the risk off day in the marketplace plus following cattle.
Kooima also says the market was due for a break.
“Extremely overbought environment, and it doesn’t take much for that to correct. And sometimes when you have cattle get hit that hard on the opening you’re going to see some follow through selling in the other pit,” he explains.
However, he thinks the break will be shallow as cash is near the high end at $102 and cutouts are at $104.
“Packers got some margin. Heat’s taking some weight off these hogs as well. So there’s some positivity with that marketplace too. And don’t forget where these funds were. They have a big short position on that. They’re kind of flying out of real quick, like with how much better the news got in the last three weeks anyway.”
So funds are exiting their shorts.
Grains Lower Removing War, Weather Premium, China Concerns
Grain markets were lower Monday morning with a gap lower opening Sunday night in the corn market.
Futures are removing weather premium and especially war premium with crude oil down over $7 on news the U.S. did not bomb Iran over the weekend and there may be a cease fire in the works.
“We had, what, 13 days in a row of missiles flying there, attacking Iran. And then Friday, all of a sudden, Trump calls off the dogs after the market closes, you know, and watch crude oil open up $4 to $6 lower.”
Plus, China responded to the Section 301 tariffs the U.S. invoked on Friday which included 12.5% tariffs on Beijing, which is a 2% increase from the previous tariffs.
“Soybeans don’t want to hear something like that, when we’re getting great news that China is buying or beans. So, anything that’s too sensitive for the marketplace to handle could have an impact,” he says.
The grains are also overbought and are seeing some profit taking.
