Cattle futures were mostly higher early Monday as well as corn and wheat, the rest of the complex was lower.
Cattle Bounce After Ugly Week
Cattle futures were seeing a bounce early on Monday after an ugly week with lower weekly closes of $10 on Dec live cattle and Jan feeders were down $13.57. That did technical damage to the charts.
Joe Kooima of Kooima Kooima Varilek says the bounce isn’t unexpected as Friday’s selloff may have been overdone with some spillover from the melt down in the financial markets.
The stock market was up Monday morning with news of possible progress on Iran negotiations and President Trump backing off his threat to escalate attacks after the midterms.
“You’re getting your stock market a little bit higher because they were certainly weaker Thursday and Friday which I think was a huge part of the late week pressure in cattle. So we’re looking for stabilization but it’s always good to at least start this way,” he says.
Feeder cattle futures are also well below the cash index which is supportive.
Support Levels in Cattle Futures?
Live and feeder cattle took out many key moving averages on Friday but help some support areas on the charts.
Dec live cattle looked poised to fill the gap area at $217.50 which was left after the September Cattle on Feed Report. That area is holding for the time and feeder cattle are also holding long term uptrend lines.
Lower Fed Cash Trade
The other fundamental that hurt the cattle futures was a lower fed cash market that started developing early in the week.
The south traded mostly $225, down $3 from the previous week. The north ranged from $218 up to $226 and dressed prices ranged from $345 to $360.
Kooima says the cash trade was disappointing but it followed a failure in the futures market following the USDA Cattle on Feed Report. The placements were largely bullish with levels 12% below last year but the futures had already priced much of that in and could not take out technical resistance areas as a result.
That set the tone and resulted in the lower cash market. Plus, show lists were larger from the previous week as packers only bought around 40,000 head of cattle on a negotiated basis, which is historically low. By Friday as the stock market sold off that also took away producer leverage according to Kooima.
“And then yet Wednesday comes around and we’re like, Oh, there’s, there’s some cash trade, you know? And we, you know, the last couple of weeks we held out to Friday, Saturday, cause we felt like we had the leverage, but to kind of let some of that stuff go on Wednesday and it kind of. Having that Thursday tech sell slide off, by the day’s end on Friday, we could even get $218 around this general area.”
Record Cattle Weights
Cattle are also at record weights with steer carcasses on USDA’s report Thursday at 994 pounds.
“We’re about six to eight pounds over the record for steers. So, it’s definitely not something that you want to carry especially into this part of the year because seasonally we do track higher with those weights. I think the packers obviously know that too that’s why they’re maybe picking around the edges last week,” he states.
So Kooima thinks the north has more work to do to cleanup those weights and get current, which can take a while. Packers have continued to buy cattle at higher weights due to the tight numbers.
“We have been concerned for a while that at some point the heavy weights might mean some discounts and push leverage over to the packers. So we’re watching that closely.”
Boxed beef values were also down towards the end of last week with the Choice values ending at $364.66. The market has continued to see pressure as packers have ramped the weekly kill back up. That also worked against any leverage the feedlots might have.
Funds Add to Length in Cattle Ahead of Election
Despite a lower week in the cattle futures, the CFTC Commitment of Traders Report indicated funds added to their length in both live and feeder cattle futures leaving a scary set up.
Could funds exit those new long positions due to uncertainty with the stock market or the elections?
Kooima says he is concerned about that and hopes the environment can settle down after the midterms, but markets don’t like uncertainty.
“There could be a big tide change in the elections here, and I don’t know if that’s going to calm the nerve necessarily of the uncertainty volume that’s out there. It almost, it’ll finally put maybe a stance like this is what we have now, and then we can work off of that. But I still think... through tomorrow, through Wednesday into Thursday, there’s going to be some money flow because there’s going to be some funds that just aren’t comfortable with where they’re at if something does go in a new direction,” he explains.
What Bottoms the Hogs?
Lean hog futures continued to set new contract and multi-year lows leaving the market questioning what it will take to finally find a bottom?
Isoweans have dropped below $20 according to Kooima, a huge shift from six months ago when disease outbreaks were holding numbers and weight under wrap.
Demand is still a problem and product values are at multi-year lows as well which is not helping stabilize the market.
He says, “Some of these products are cheap enough. Some of these grindings are cheap almost to a rendering price, and we still can’t get any kind of momentum to come out of here for demand. It’s a sore subject to try to figure out, but we have to see some kind of a status quo change in the production there. Usually we get some disease issues this time of year, especially with it raining outside in this general area, but that would be it. That would have to change it to get the funds to have a little bit different shift in their stance.”
Corn Bounces, Soybeans Fall
Corn futures were slightly higher with wheat early Monday on short covering and after funds had another huge week of liquidation. Funds sold 90,000 contract of corn and 24,000 contracts of SRW wheat.
Corn was also getting help from a huge export purchase by Mexico. They bought 68.7 million bushels of corn with 44.7 million for the current marketing year and the balance new crop.
Meanwhile, soybeans were lower with the drag of lower meal and soybean oil. Plus, funds are still long in the soybean complex a sizable amount so they are continuing to liquidate and pressure the futures.
