Grains end mostly higher Monday, with cattle and hogs lower.
Have Cattle Topped?
Live and feeder cattle futures were down for a second day on follow through selling. Both made record highs on Friday and then closed lower on big volume scoring key reversals.
So is the top in the cattle market?
Brad Kooima of Kooima Kooima Varilek says it is dangerous to try to pick a high in this market but it fits the profile of a technical top.
“Some 45 years ago I learned a reversal has to be from a terminal area, which is just a fancy way of saying an important area. And I don’t know what’s more important than the all time high. So, we did that on Friday. It has to be done on big volume. It was 86,000. It should be accompanied by an increase in open interest, and it was. And then the third thing is that it should have followed through the following day,” he explains.
However, he says the market ended well off the lows because at one time feeder cattle were over $7 lower and the June live cattle closed almost $3.50 off its lows.
“While it was still lower, it was a long ways from where it was,” he says.
Cattle Hold Critical Support
So the market held the support it needed to on the charts because according to Kooima June live cattle stayed above the 50-day and the
20-day moving averages, which has been kind of significant to keep an eye on.
“August feeders got a little whippy. We got all the way down to 62% retracement, then held that. So I’d say we did good enough holding what I think was technically important,” he adds.
Cash Trade Topped?
Several fundamental factors may have also caused the sell off including this week’s cash expectations.
Last week the cash market hit record high levels with Southern deals mostly $244 to $256, up $9 to $10. The North was $255 to $258 live and mostly $400 dressed, up $14.
The average steer price was reported by USDA at a new record high of $255.02, up $8.84. So it will be hard to see an encore.
“I mean, the market was basically $246 last week, Wednesday, I think. I know I passed $248 on Friday then, but if you compare like $246 and then getting cattle as high as $258 last week. You find me a week where that happened before. There was a couple of weeks in 2014 that were like that, but maybe not quite that much,” he says.
Kooima adds that it is interesting the packers came out already so aggressively on Tuesday and Wednesday, to try to buy cattle.
“And dovetail that with the fact that a month ago or so, there was plenty of these basis deals made by some of the major packers where they were willing to pay five or six over where the Junes were for the first two weeks of May. At that time, that was the equivalent of like $252 on cash cattle. At the same time, the cash market was probably $5 to $7 less than that. Well, a lot of guys did that because that looked pretty attractive, right? Turns out it’s cheap now compared to what the packer paid last week,” he explains.
So the packer was trying to get enough inventory so they didn’t have to work so hard to secure as many numbers this week theorizes Kooima.
“So you’re going to have a standoffish week on cash, maybe. Let’s call it steady due to lack of trade, perhaps, just because I don’t think we’ve
got very small show lists up here in the North, very small. So we don’t have much for sale, but you might have a packer that might not need to buy much,” he says.
Kill Cuts
That because the packers are trying to cut kills this week to prop up their margins.
“I’m not going to say names, but there’s plenty of them that are going four days this week. And one’s down today. A couple of them are down Friday. So the packer is trying to do whatever is necessary to not have to chase the market anymore,” he adds.
That was already a pressuring feature for the market on Friday.
High Gas, Stock Market Sell Off
Also working against the cattle market was the surging gas prices and the sharply lower stock market.
At some point that becomes negative for consumer demand. “One has the worry that, you know, and the inflation or the stress on the budget that’s created by that. And let’s be honest. I mean, boxed beef is no runaway with this tight kill. And it is less than a week now till Mother’s Day. We’re already past that. Usually two weeks ahead of Mother’s Day. That’s kind of your signal for let’s begin the middle meat rally. So hopefully it
still develops. But I think. There was some of that going on today,” he says.
So that created some technical selling especially with the funds nearly record long.
DOJ Probe
Adding to the bearish attitude was USDA Secretary Brooke Rollins reiterating the goal of the Trump administration to get beef prices down.
Part of that strategy includes a Department of Justice investigation of the beef packing industry.
He says, “I’m not sure that Secretary Rollins commentary this morning was helpful to the market either, bringing up the concept of investigating the big four. You know, probably if you’re an algorithm trader and you’re trading, you might think, you know what, I don’t think I want to be participating in this kind of uncertainty.”
DOJ has probed the packing industry in the past only to walk away empty handed but it spooked the funds.
“There’s things that have happened historically that deserve some looking into including the Holcomb fire. I was very vocal through that period about how we killed more cattle after the fire than before it but they couldn’t see anything wrong then. You know, I mean, we had 85 cent cattle and $450 boxes. So, you know, so what are they going to find now?”
Hogs Down Again
Lean hog futures were down again on Monday with continued fund liquidation and technical selling.
Kooima says the market got spooked about the pseudorabies case in Iowa on Thursday and Friday.
He was hopeful with the positive comments Iowa Secretary of Ag Mike Naig made about the problem being contained that the market would stablize.
“He outlined how everything got tested. These were five boars from Texas and an isolated incident. We’ve got protocol in place and we haven’t had a case since 2004. I was hoping that maybe cooler heads would prevail,” he adds.
Kooima says the cash news is pretty friendly but the market can’t find support and the charts look terrible.
“The inability to source pigs because of the disease problems is real. What these pigs cost, close to $100 on an isowean, $150 on a 40-pounder, would tell you just how tight the supply is. So, you know, I have a tendency to be a little bit of a supply-side bull here with nothing to show for it.”
Soybeans Break to Fresh Highs
Soybeans ended 16 to 21 cents higher on Monday and made new highs for the move in both old and new crop contracts.
The market was following bean oil which made more new contract and multi-year highs once again chasing higher crude oil.
The market was also building in optimism ramping up into the trade summit next week in China.
“The hope that we get something tangible with this China visit. I would caution everybody be a little careful as this is China. They’re a bit disingenuous and not the most reliable trade partner but that is out there,” he states.
The crude oil/bean oil story is also a drive as he says with higher energy prices there is the fear of inflation.
“I think is reflecting in some of our commodity prices here, too, most notably some of the stuff that is relatively cheap, like the grains are,” he adds.
How High Will Soybeans Rally?
With the chart breakout will July soybeans be able to take out the March high of $12.50 3/4 and will November soybeans get above $12?
Kooima says both of those moves are in the cards. “Based on the chart pattern here and the fact we have broke out of the range we have been in for six or seven weeks. When you break out of those consolidation patterns that it’s like coiling a spring. I always think the tighter it’s wound then the bigger reaction you get. So, this thing actually projects through that old $12.50 area on the July beans which is a big deal. On both the
weekly chart and on the daily chart it actually opens up the path here for a move to $12.70 or even maybe even closer to $13 on the old crop.”
That could put November in the $12.40 to $12.50 price range where he would suggest some marketing.
Corn Makes Fresh Highs, Dec Closes Above $5
Corn also made fresh highs for the move in sympathy with soybeans and on fund buying.
Funds bought over 80,000 contracts and could add to that Kooima says.
“You don’t have to be a genius to look at $4.85 to $4.87 on the July corn to know how important that is. Let’s see if we can take that out. December corn, you know, that’s new highs for the move. Nice looking chart pattern. We are kind of overbought here. I don’t know if we need to rest just a little bit. But, you know, incrementally, I was starting to look at some new crop sales here. And then the next level at around $5.20. And then the next one around $5.45. I’m more inclined to sell into the corn rally.”
He says the market is also watching weather, lower acreage and fertilizer concerns plus whether or not China buys corn at the summit.
