Cattle start lower Monday, with hogs 2-sided. Grains are mostly lower.
Cattle Lower But is a Bottom In?
Live and feeder cattle futures started lower on Monday and are seeing a lack of follow through buying after closing higher on Friday and posting higher weekly closes last week. It was impressive that futures were able to recover and close higher after starting with limit down moves on Monday in response to Tyson closing their Lexington, Neb. plant. So is the market in the process of bottoming? Brad Kooima of Kooima Kooima Varilek says he would be more confident about the lows holding if three factors would turn positive.
Weights Need to Get Current
One of those factors is feedlots need to get current. Weights last week were once again at record levels with USDA reporting carcass weights at 893 pounds, which is up 27 pounds over a year ago and 54 pounds over two years ago.
Kooima says this is the time of year weights are normally heavier but with the cash prices slipping there has been a trend of more feedlots feeding cattle longer to make up the difference. That is giving leverage back to the packers.
Boxed Beef Values Need to Catch
Kooima says boxed beef values also need to stabilize and start moving higher. Although the market is only a couple of days past Thanksgiving he thinks the ribs and middle meat need to start to rally to pull up the beef values.
Clarity on Reopening the Border
There also needs to be more clarity on the reopening of the border to Mexican feeder cattle. While USDA Secretary Rollins says last week the reopening would be staggered and start with Arizona there is still no definite date for resuming imports. Until that happens there is enough uncertainty that funds don’t want to reestablish long positions in the futures.
How Much Recovery Can be Expected in Cattle?
Kooima says if the lows can hold it doesn’t mean a huge recovery in the market. Technically cattle futures would need to rally significantly just to close back above key resistance areas on the charts where the break lower began. He points to $227.40 on the February live cattle as one of those key target areas. The bulls will need a close above this point to bring fund trader back in on the long side with any confidence.
Cash Trade Improved in the South Late in the Week
Cash trade started off the week sharply lower with dressed prices in Nebraska at $330, down $13 from the prior week’s weighted average, basis Nebraska. However, business in Kansas and Texas was done mostly on Friday. Southern live deals were started the week at $215 but by the end of the week had improved by $5 at mostly $220. However, that was $2 to $4 lower than the prior week’s weighted averages.
Lean Hogs Two-Sided
Lean hog futures started slightly higher but failed shortly after the opening in tandem with the cattle futures. After last week’s higher weekly closes it looked like the hog futures were starting to form a bottom but will need some follow through buying early this week to confirm that. African Swine Fever was reported in Spain and has large customers like China and Mexico banning imports but Kooima says Spain is not a major exporter so it won’t have much market impact.
Grains See Profit Taking with No China Buys
Corn and soybeans were higher last week but are seeing some profit taking and corrective selling after failing at chart resistance. Plus, there were no additional sales announcements of China soybean purchases this morning which may be leaving the bulls disappointed. “The bulls need to be fed every day,” adds Kooima. However, he thinks with China’s large pork herd they will need to buy additional product from the U.S. and so he is longer term friendly to the soybean market.
