Grain and livestock futures were mostly lower on Friday morning.
Cattle Crash on New NWS Case, Lower Beef
Live and feeder cattle futures were lower early Friday seeing some following through selling from a lower close Thursday and with sharply lower boxed beef values.
However, a case of New World Screwworm (NWS) only 52 miles from Texas was reported by USDA on Thursday making it the closest detection to the U.S. to date.
Brad Kooima with Kooima Kooima Varilek says that was causing additional fund liquidation. “We have a NWS case 52 miles from the Texas
borders that contributing this morning to the weakness, especially when you’re talking in terms of the feeder cattle. Even though we know it is treatable the market has shown us that if they have a little bit of a new wrinkle or new worry that it’s even closer, it gets a negative reaction.”
Weak Technicals Also Drive Selling in Cattle Futures
The week technical picture of the cattle futures is also contributing to a mentality shift in the cattle market of the funds selling on every rally.
Kooima says the technicals he and other traders are watching have turned bearish.
“My line in the sand on October live cattle is $232.80 as that is where the neckline was, where there was a double bottom where the moving average that day 40, 100 day moving average was. We are below all those moving averages,” he explains.
He says that doesn’t mean the market is in a downtrend. “Maybe it’s sideways but you also look at August feeders which rallied back to the gap down that we had left last week, Friday, gets almost to the gap, fails. And now here we are. We’re looking up and going, holy cow, we’re $7, $8 off of those highs already. We failed right at the first level of resistance. August live cattle rallied back right to the 40-day, right to the old trendline breakout point and halfway 50% retracement.”
He says the funds trade that and so they have exited the market, in both live and feeder cattle futures.
“The open interest has come out of the June and really hardly gone back into the back end, August and October.”
Cattle Market Rolling Over?
So now what’s unfortunately what’s happening is the funds are selling on any strength in the futures.
“I think the market’s rolling over or has rolled over now, even though the futures are at a discount to the $260 cash from last week,” he adds.
Cash Cattle Lower This Week
Only a handful of cattle have sold at $405 dressed in Nebraska Thursday.
And with the break in the futures Kooima is concerned that the cash will be lower this week.
“I hope I’m wrong but I thought that we had a chance to be steady to higher this week but not with the action in the futures I think the basis traders will probably soften that, but we’ll see as it is early in the day,” he states.
The hope is that with the huge discount the futures are holding to the cash, even if it is lower, will held the market hold.
“If I look at the last three to five years for the last week of May and pick a number it is someplace between $5 and $7 under the board. A wide basis is something that we’ve talked about on your program a number of times. And we talked about it, that that was a characteristic of the 2014 bull market. And that sometimes toward the end of the market, that last move is all basis. You know, where cash is good, futures start to get tired, futures are having a harder time,” he explains.
Fort Morgan, CO Plant in Limbo
The futures market has also been watching the lack of progress on the negotiations between the union and management at the Cargill beef plant in Fort Morgan, CO as the two sides met this week and failed to strike a deal.
“There are mixed signals out of there. I came in early in the morning, overnight, we got a deal, it’s signed. No, we don’t after all. Yes, we’re going to go back to work June 8th. And then finally, the union spokesman there emphatically and with a strong language says no deal until they come our way, right?”
Either way, right now they are still seeing a lockout and it could stay that way for a while according to Kooima and the packer has no inventive to make a deal as they are losing money.
“I mean, we made all-time cash highs at $265 two weeks ago while they were on strike. Is this a huge thing that they’re still on strike? No, it’s not. It would help us a little bit if they would settle. I would think that you’d get the same headline followers that would say, well, okay, you know, it’s safe to go back in the water. That should help you get a little bit of a bounce. But we’re waiting on that news. We’ll see once. I don’t think the union’s got a lot of leverage with the lack of profits for a packer right now,” he adds.
Talk that the Dodge City, Kansas plant workers were also going on strike in sympathy has also turned as they signed an agreement which provided the market some measure of relief.
“Cargill’s been able to keep their kill up by killing a little closer to capacity at their other plants. So that was good news.”
Hogs Fail Again
Lean hog futures are also sharply lower in sympathy with cattle and can’t seem to find traction for more than one day.
Kooima says its frustrating especially with beef triple the price of hogs and demand is still soft.
“You know the lack of global demand is a problem and look at the slaughter levels they’ve actually started to come down a little bit but we can’t get the cutout to catch,” he says.
Grains Lower
Grains started mostly lower except soybeans, but then the whole complex quickly headed South with lower crude oil and the hopes a cease fire deal is going to stick this time which will limit inflationary fears.
Plus, the wheat market is lower trading rain chances in HRW areas, which is dragging down corn.
Kooima says the lack of bullish news is not helping. “The problem with the corn is there just is not a lot of good news out there, Michelle. I think all of those are part of it. I think the lower crude oil, the hope that peace is going to break out here, you know, slowing these inflationary fears if we can get the price of energy down, right?”
Plus, he says there is still too much old crop corn yet to be marketed and that is evident in the weak basis in areas like Northwest Iowa where there is tremendous demand from livestock and ethanol plants.
“High usage area for corn yet the basis by my memory is the worst for this time of year in 10 years. You know we’re trading 35 under there’s
too much old crop corn. If we have a drought sure you’ll rally but I mean you’re gonna have to have a bunch of good news here and when we should have normally narrowed the basis was May and that didn’t happen. So I’m a little worried,” he states.
Plus wheat rallied to $7 and corn was reluctant to follow.
Soybeans have a better chance to rally with a tight ending stocks figure of 340 million bushels and possible China business.
