Cattle open higher then fade, hogs rally, grains mixed early Friday.
Scott Varilek, Kooima Kooima Varilek, says live cattle futures gapped higher on the opening Friday and made all-time highs once again.
Varilek says prices have exceeded even the most bullish expectations.
“I mean, it was a year ago, we’re talking possible $3 feeders and $220 fats, and those felt like astronomical prices. And people might have thought we were crazy about it, but now here we are and we’re higher than that and it’s, it’s, you know, through all of the numbers that even the, the most bullish people were talking about.”
How much higher can the market go, what technical signals is he watching and do the technicals even matter in this type of a market?
Varilek says, " I don’t know if it’s a spike top or not, but you did have your third exhaustion gap today. You had a third gap in the feeders. So maybe that’s that exhaustion gap. I think there was people waiting for that to try and sell it. So we’re due for a little bit of correction here possibly, but that cash is just too hard to ignore that it just hangs on.”
The futures are chasing cash which developed at some record levels for a 7th week with Southern trade at mostly $232, up $10 from last week. Northern cash live was at mostly $240, up $5, but there was some $242 paid as well. Dressed prices came in at mostly $380, up $13.
So far this week, live trade in Kansas and Texas has had a range of $225 to $232, $3 to $10 higher than last week’s weighted averages. Dressed deals in Nebraska and Iowa have been done at mostly $380, $13 higher than the prior week’s weighted average basis Nebraska.
Varilek says packer margins are deep in the red and they are still trying to gain back leverage but right now the cash market is red hot.
With packers losing so much money there are underlying fears of plant closures but Varilek says in the last bull cycle in 2015 the one plant that did shutter did so very quietly.
Meanwhile, Cargill announced its investing $90 million for more automation at its Fort Morgan, CO beef facility.
With futures so far under cash it is making it difficult for producers to hedge their risk but with closeouts topping $500 a head in some cases risk management is still important. He says puts are the best marketing strategy.
“We’re insuring a mansion now, not a trailer house,” he reminds producers.
Lean hog futures are rallying Friday morning with deferred months back into contract high areas but the front end of the board has been pushed by strong cash and cutouts, plus tight supplies.
Both cutouts and the LHI are at levels not seen since August of 2023.
Funds have also been buying and Varilek says open interest in hog futures is up over 65,000 contracts in the last month.
Grain markets are mixed early Friday after seeing some gains earlier in the week.
Varilek says the markets tried to correct their oversold status with some short covering and added weather premium earlier in the week.
Soybeans are also seeing some support from news the U.S. and China are moving ahead on talks after a productive call between the two presidents.
However, Varilek says none of the grain markets have been able to take out resistance areas on the upper end of the chart patterns and are essentially range bound looking for a bullish enough story to move past those area.
