Cattle and grains were mostly lower early Friday with a rally in hogs.
Cattle See Profit Taking
Cattle futures were lower early Friday after seeing feeder cattle make news highs for this move on Thursday.
Scott Varilek with Kooima Kooima Varilek says the markets were seeing some profit taking after hitting chart resistance and with the futures getting overbought. There is also a risk off tone in outside markets.
However, the corrections have not lasted long and with strong cash news the markets could break through those chart areas.
Higher Cash Trade?
Will cash trade be higher this week? There was some early cash at $260 live and $406 dressed prices the North which was on the top end of last week’s trading range. That was followed by some $408 dressed prices in Iowa on Thursday.
Varilek says feedlots have been passing $260 in the North bid by a regional.
“So, I mean, we’re still feeling like the producer has the leverage. And they, you know, we’re kind of feeling $262, $263. I know there’s been some $265 hopes. I’m not sure that that’s the case. You know, we’ve gotten past this buying for meat demand for a three-day weekend or for July 4th. Is the Packer really going to push?”
So he thinks cash could settle out at steady prices because of the negative packer margins and peak grilling demand for beef falling after the holiday.
Futures Discount to Cash
June goes off the board on Tuesday and is trading around $257, which is still under cash.
The discount gets much wider in the deferreds and that should be supportive.
Cash Feeders on Fire
The cash feeder market has been on fire with the index hitting a record $381.86, up $6.03, largely due to the strong market in Bassett, Neb.
That has supported the futures and feeders are back in leadership mode.
Some of that has been tied to the New World Screwworm (NWS) cases in the U.S. and the border remaining closed to Mexican feeder cattle and the impact that is having on tightening feeder supplies in the South.
“Texas organizations right now are really lobbying to get that border open and trying to meet with Secretary Rollins. I don’t know if they have met or have it scheduled yet, but that’s their goal. They’re trying to get it open, but it doesn’t help that we’re up to 25 cases now and this is slowing down this tight, tight supply of feeders,” he says.
Add to that the expanding drought in some areas of cattle country and it means a continued slow rebuild of the heard.
Feeder Cattle Futures to Make New Highs?
The feeder cattle futures have not taken out the all-time highs yet but if the cash market continues to support the rally will that happen?
Varilek says he is not confident he can predict that’s in the cards.
Hogs and Pigs Report Friendly
Lean hog futures were higher early Friday after a friendly USDA Hogs and Pigs Report, which showed a slightly smaller herd, down .4% from last year.
The kept for breeding number was down 1.2% and was below expectations with farrow and farrowing intentions also showing some contraction.
Varilek says the inventory number did help confirm some of the disease issues in the herd they have been hearing from producers.
He said the market has been waiting to see lower numbers for several months now.
“And we weren’t really seeing that come into the market or that it even cared about it. And this was just a little bit of a proof that hey yeah okay numbers are a little tighter now the numbers were slightly friendly,” he explains.
He isn’t getting overly excited about the report because it doesn’t carry as much weight in the market as it used to but admits it could help bottom the market or give funds a reason to quit pushing the short side of the market so hard.
“I’m just lacking of confidence. We’re going to need some downtrends, lines broken,” he adds.
Grains Lack Follow Through on Rally
Grains were mostly lower except a few corn contracts early Friday with a lack of follow through buying after the big rally on Thursday.
Varilek says it is disappointing considering the key reversals scored in corn. However, he thinks the heat moving into the Corn Belt the first two weeks of July will provide some support and could help bottom the corn market.
“So oversold, pretty sharp break. And now you’ve got a forecast that says, hey, we’re going to get some heat and it’s going to be here for a little while. So put a little premium back into this market. At least it can kind of stop the going lower,” he says.
And once that happens funds may have to cover some of their short position and technically could take December corn back to the 50% retracement level of $4.68. But it will take prolonged heat and lower acreage to do that.
Soybeans Correct Awaiting More China Business
Soybeans rallied Thursday with confirmation of 200,000 MT of new crop exports to China in the report and market talk China was looking for more.
However, there was no confirmation of any flash sales on Friday morning which sent soybeans lower and bean oil was following the lower crude oil futures again.
The market is also gearing up for the end of month and quarter, first notice day, plus USDA’s big reports next week.
The market is anticipating higher soybean acreage but not as much of a shift as expected this spring so that could also help support the futures.
