Cattle were higher early Monday with grain and hog markets slightly lower.
Cattle Extend Gains on Higher Cash
Live and feeder cattle futures were higher early Monday extending gains after Friday’s higher cash trade says Brad Kooima of Kooima Kooima Varilek. Southern deals were $242 to mostly $245, up $3 to $6 from last week’s weighted averages. Northern trade was $378 dressed, up $1 from the previous week with live sale prices at $240 to $244. Kooima says this is positive for the market and helped futures recover from the steep selloff on Thursday tied to the concern about a worker strike at the JSB beef plant in Greeley, CO.
Higher Cash This Week
He says showlists are smaller this week and so he sees higher cash trade again for this week. “I think we have a shot at More general $245 across the north, there was a bit of that in the south last week. I think that’s where asking prices are. I know I’m hearing these packers are getting a little closer to the knife, using up some of the inventory that they had bought. A lot of cattle getting scheduled that had been bought two weeks ago. I think that there’s multiple packers that are going to be needing to buy some inventory here. We do have maybe maybe a pseudo holiday a little bit. Usually we get a pretty good kill on President’s Day, but that might factor in a bit. But I think, I think, yeah, I think we’re going to be higher this week. I think we got a shot at $250 here in a few weeks.”
Basis Flip
While cash was strong last week, Kooima says the basis has now flipped with futures being the follower of cash rather than leading it. “Which is a little unusual and a little annoying. but, you know, I mean, I guess I prefer the basis flipped like it is, but that’s two Fridays in a row where the cash market is really outperformed, almost everyone’s expectations, put on basically $10 here in two weeks. And the story doesn’t change. It’s because there’s not enough cattle to go around.”
Higher Weights Offset Packer Kill Cuts
Packer kill cuts are still prominent in the market as many have dropped to 32 hour a week kills, putting last week’s slaughter at only 536,000. Kooima says its a function of how tight the numbers really are. “That’s why packers are going 32 hours. The numbers, like I’ve been saying, I think they’re the tightest of the whole cycle here right now, where we are, anyway. And, of course, the South is going on 14 months, of course, with the border being closed. So we’re still there.” However, at some point he cautions that the best news will be priced into the futures. Still Kooima says the numbers are being offset by the higher weights.
Argentina Beef Imports Bump Digested
Argentina beef import news was digested by the market on Friday according to Kooima. The market was aware of the deal struck between the U.S. and Argentina to raised the beef import quota from 20,000 MT to 100,000 MT. However, President Trump’s executive order to raise the imports on Friday was another reminder and took the futures market off its highs. Kooima says it is only about 2% of total imports and insignificant overall.
“Is it a huge amount, a significant amount, a game -changing kind of amount? No, no, it’s not at all. I no point in me being real political here, but I am extremely, extremely frustrated with this whole notion that’s beef is too high. It is what it is. And a lot of things are too high if you want to go there, right? And I think the government needs to stay out of it and let the market do its job and we’ll figure it out. The amount of beef from Argentine is not a significant amount. I get it. We’ve got to have hamburger, but there’s a lot. We don’t need anybody in Washington, D .C., trying to control what the cattle prices are or what they are, So we’re telling me that’s too high.”
Market Needs to Retest Last Week’s Highs
Kooima says last week the futures made new highs for the move in both feeder and live cattle futures before the big correction on Thursday. He thinks to keep the rally alive the market will need to take out those last week’s highs and also fill the gap area on the charts left after the Thursday’s open.
JBS Strike Could Happen
Kooima says the JBS strike could happen in the near future.
“If you just kind of think about it a little bit, and the way I would think about it, they’ve been negotiating for what, eight months, haven’t been able to come up with a deal. If you’re a packer where numbers are tight. You’re forced to pay more than you want to for life cattle. What you are killing is losing money. I mean, it wouldn’t be the worst time in the world for work stoppage, right, for a little while. And I’m not saying that that’s their intent at all, but I’m just speaking reality. It doesn’t seem like they’re highly incentivized to, like they would be if they were making lots of money to let’s get a quick resolution to this thing and so we can keep blood on the floor. So we’ll see. Now, if it’s a short period of time, I think you have to balance that, though.
It’s hard enough to find people to work at a bank, bank, let alone people to work at a packing house. I mean, I would think that as an employer in that situation, you would be a little concerned about losing your workforce, particularly when it’s really difficult to maintain that kind of consistent employment at a place like that. So hopefully it doesn’t happen at all. If it does, it’s only a short time. If it only is a few days, I don’t think it’ll hurt the market. If it, you know, obviously, if it lasts longer than that, it potentially would have an effect on, you know, unbalancing the supply again. Yeah, for sure. We’re already seeing kill cuts.”
Hog Futures See Hedge Pressure
Lean hog futures were lower on Monday and have consolidated off recent contract highs. Some of the set back is profit taking, but it’s mostly hedge pressure according to Kooima. “If you’re a hog hedger and, you know, if you are, I’m proud of you because there isn’t very many of the independence left anymore. But you’ve got a market here that’s been overbought since the first week of December. Like hogs like to do, we go straight up and straight
down. We go from $93 to $112. Okay, that’s a big move. “
The fundamentals, are supportive with tighter numbers tied to disease problems but the funds are long over 128,000 contracts and may also be ready for a deeper profit taking correction he says.
Soybeans and Corn Fade
Soybeans were lower early Monday after ending well off of session highs on Friday on profit taking and farmer selling. Kooima says the market is looking for more confirmation of China business as well. USDA announced a flash sale of 9.7 million bu. of soybeans to China Monday morning but the market will need more to continue higher especially Brazil’s record crop on the way.
Corn Stalls Ahead of WASDE
Corn futures were only up two cents last week on the March compared to 50 cents in March soybeans and so it is unlikely the market can find any news to help rally the market. In fact, Kooima is concerned that the WASDE will be another bearish reminder of the large 2.2 billion bu. ending stocks. “But I think we’ve struggled to stay steady on the corn, frankly. I hope we do for the producers’ sake, but we’ve got some pretty negative fundamentals to work with,” he adds.
