Cattle and grain markets were higher early Friday with hogs mostly lower.
Cattle Recover After Thursday Selloff
Cattle futures were higher early Friday after seeing a profit taking selloff the previous session.
Scott Varilek with Kooima Kooima Varilek says live cattle futures hit the 50% retracement level resistance area and got stopped cold.
“October live cattle looked pretty important because there’s a little gap in the chart there didn’t have that firepower to try to get through and close that gap. And that’s exactly where it started to fail from,” he says.
He explains that part of the reason is the thin volume in the market with the absence of the fund traders and open interest continues to fall.
“It’s just down every day and another 5,500 contracts off yesterday. It’s just the funds aren’t there. Our big backing isn’t there. So it didn’t have anybody that wanted to push it through. And easy path was lower once it couldn’t fill that. everybody’s having a tough time trading this and when you have that thin of an open interest you get these wild day swings it’s easier to move easier to shift around,” he adds.
So its very frustrating and market traders don’t want to chase.
Higher Cash Cattle Trade
The frustrating part as well is the futures could not break above resistance with higher cash trade in the country.
Southern trade developed at mostly $235, up $2 with a few at $236. Northern trade live was $235 to $236, up $3 to $4 with a few up to $240. Dressed prices ranged from mostly $370 to $375.
Varilek says packers were buying for the second week of August to get some Labor Day buying. However, after that he says it will be a struggle as producers will lose leverage.
“The packers can cut some kills and there’s not a lot to look forward to so we’re trying to get some sold and then all of a sudden we had you know after you can only find one packer at $235 then more came out of the woodwork and we were able to get $236 more cattle got sold. So, cleaning up some showlists here now,” he says.
Producers have gotten their basis back which is also good but that could quickly erode he warns with producers holding cattle to put back weight lost in the heat.
“So that’s kind of our threat moving forward. If we don’t sell now, are we going to lose some leverage with the packer moving forward. After this Labor Day buying now my fear is we start to turn the corner and you’re going to put another you know 50, 100 pounds on this animal are we going to have too many people doing that and then the packer can regain leverage,” he adds.
Can Futures Get Through Resistance?
So can the futures retest those 50% retracement levels that serve as resistance and continue to rally?
Varilek says its the wrong time of the year. “I don’t think there’s enough gas in the tank to punch it through. So I’m trying to respect this and looking for some protection. And I mean, now as we’re getting closer to some of these fall months and you can actually find some options that aren’t so bad to try to put a floor under some of this prices. So I’m absolutely doing it. I think the risk of it breaking is still there.”
More Packer Closure Talk
The talk of a plant closure was also adding to the negative mood of the cattle market on Thursday and Varilek says that’s because of the continued story of packers losing money.
“That’s making some headlines, there’s some upper management that’s getting fired. So, I think that’s what’s in the news that fear of another plant having to close because of the large losses these packers are having.”
Varilek says the industry has very little sympathy, “We’re like well you made your own bed record profits in 2020 when we’re all struggling and looking for for bailouts. That’s why that cow calf industry just said they could not make money doing this and really liquidated that cow herd down to emergency levels. So this is the bed that they made right here that’s for sure.”
Softer Beef Demand
Varilek is also concerned about softer beef demand as even though retailers are buying for Labor Day the Choice cutouts were down over $4 on Thursdays close and nearly critical $360 support.
“We’ve had that in our back pocket during this whole rally, just how great demand is and how many good headlines. We were the next fad for beef is healthy for you. However, we’ve got energy prices that have been higher so consumers still want beef but are buying ground beef instead of high-end cuts,” he explains.
Herd Rebuilding in Action
Varilek says the other headwind for the industry is that it is in the rebuilding phase and there is heifer retention happening.
He says at the beginning of the bull market lower quality cows could be sold and a trailer load would turn $50,000 to $80,000 head which made it easy to cull.
“Now we’ve gotten to that point where the cow slaughter has really dropped the last couple of years. And we’ve got a dairy industry starting to grow. So trying to find a way to make more supply. High prices, cure high prices. That’s what we’re doing.”
Varilek also says sale barn numbers are also lighter as producers are keeping heifers back and breeding them. “We’ve made a lot of money these last couple years and we’re trying to fix that problem. So, I think that’s part of this.”
Hogs Struggle
Lean hog futures opened lower after an ugly close Thursday as the market is technically breaking down. Cash and cutouts have also been rolling over this week.
Varilek says the pork market couldn’t take off when beef demand was hot and those retail prices have stayed stagnant even when the market got into the tighter slaughter numbers.
“Now we’re seasonally coming into when we get some more hogs and if they couldn’t rally before there’s nobody’s looking at it saying that looks cheap I want to buy it. So there’s your drift lower. It’s going to get down to some of these lows and decide if it needs to hold and grind lower. But it does not have much good news to rally on here,” he remarks.
Grains Bounce Pre-WASDE, With Export Sales
The grain markets were higher early Friday seeing a technical bounce and short covering as corn held the 50% retracement levels and November soybeans hold the 100-day moving average.
However, the markets are positioning heading into the WASDE next week and there was some demand news to support the rally.
China bought 8.7 million bu. of new crop soybeans while Mexico purchased 11.3 million bu. of corn with the majority for 2027-28.
Varilek says, “The demand’s feeling pretty good. You know, I mean, we’ve got some more sales here this morning. And I think that’s helping us stabilize these markets. We all feel its got a pretty firm floor and we aren’t going down to make new fresh lows.”
To confirm that the market will need a positive WASDE report Aug. 12.
Acreage the Wild Card?
The higher yield estimates on corn are likely worked into the market so the wild card may be acreage according to Varilek.
Some in the trade are expecting higher corn and soybean acres based on the FSA certified data that will be incorporated.
However, Varilek thinks corn acreage could actually be lower and soybean acreage higher.
“So there’s some talk about some increase in the corn acres and we don’t think that that’s the case. You know, we had high fertilizer prices and you get a lot of guys that want to, you know, once they get some corn planted, they want to keep shifting some more over. We don’t think that that shift happened. So that maybe that’s some of the reasons corn starting to hold,” he explains.
So, he’s covering feed needs at this price level.
