Cattle were higher early Friday with the rest of the ag markets lower.
Cattle Rebound Friday
Cattle futures took a breather Thursday but were back higher early Friday with volatility reigning supreme according to Scott Varilek with Kooima Kooima Varilek.
He says the cattle futures are getting tougher and tougher to trade because of the choppy action. “Because there’s no bids, no offers. The volume is hard. I mean, you try to sell five feeders at the market and all of a sudden it kicks the order back because there’s too much movement.”
That is making it tough for hedgers to use the board.
“So and as we’re doing these hedge strategies, we said, OK, we would like to use a spring rally to try to get some long term protection on. Now,
putting that on is really hard in these markets and you have to be ready. It’s not going to be cheap to get some floors on in the feeder cattle market,” he says.
Record Cash but How Crazy Could it Get?
The futures market is still at a discount to this week’s record cash trade which continues to look bullish.
The volume of cash in the North was in the $265 area but the South also saw $260 to $262 as packers seem hungry for cattle according to Varilek.
“I mean, just the hunger from certain majors and all the packers out there buying these cattle is really wow to me. We get some $265 trade, you know, getting this really wide basis normally this is our widest basis is in May and at record prices,” he says.
And packers are buying at these prices for delayed delivery into even the middle of June which is also bullish.
“They’re just grabbing a bunch of inventory so that way they can sit for a while and then it seems like then they’re back the next week already. So still tight supplies up front. It feels really good. And I love it that some of these majors are out front. You know, for the north, that means a lot.”
He says usually Northern feed lots have a hard time getting bids from certain packers but that isn’t the case this year as the cattle market is into its tightest supplies.
“But we’re turning over to this calf crop where these weights are a lot lower, and we’ve got cattle on feed that we might not want to sell yet and packers are calling bidding on them,” he adds.
So next week he expects asking prices will be higher at $268 to $270.
Higher Cattle Limits
Part of the break in the futures on Thursday was news the CME Group was raising limits on cattle again to $8.50 on live cattle and $10.75 on feeder cattle.
Varilek says that only benefits the big fund traders and they are pushing for it, to the expense of producers.
“We do not want that as producers. It’s hard to see our bottom line change by that much just in the matter of seconds. It doesn’t feel like we need that,” he adds.
Ft. Morgan Union to Vote on a Strike on Monday
The Fort Morgan, CO Cargill beef plant union is expected to vote on whether they are striking or not on Monday.
However, Varilek says it may be a non-event because the plant has been dark and the market hasn’t cared.
” And it just feels like we haven’t traded that real hard just because it’s been closed for four weeks and yet we’re still seeing cash move higher. Packers are still very aggressive buying cattle. It’s like, OK, I guess I guess nothing happened. So if there’s some more new news next week, maybe we’ll see if it really dives into the market.”
He’s doubtful it will but the bigger concern is another plant closure.
China Beef News
Conflicting news reports on China re-listing nearly 400 U.S. beef plants for export ended with China still not accepting U.S. beef.
However, Varilek says the market did not trade it.
” I feel like we brushed it off, you know, just because, number one, we know Trump’s saying beef prices are too high and he wants to import a bunch of beef to try to handle this tight supply. So we know we don’t have just a large amount of beef to sell, to export, you know, so we don’t really have it. So then the fact that it came out that they’re not, I don’t think we’re trading that real hard,” he adds.
Hogs Spiral on Mexican Export Resistrictions?
Lean hogs saw a nice rally on Wednesday but failed to get follow through buying on Thursday or to start Friday.
Varilek says the inability of the market to find a bottom may be tied to Mexico putting some export restrictions on U.S. pig semen, live breeding animals and offal due to pseudorabies.
“A negative flag that it’s raising there just because Mexico is our number one customer there for pork and and we desperately need it and this adds value to some of the lower quality pork products,” he says.
He says this doesn’t impact muscle cuts but Mexico does take a large amount of variety meats and this accounts for 10% of all their imports.
That is offsetting some of the positive news in the market including that two to three packers aren’t killing on Fridays because they can’t find enough hogs.
Funds Sell in Grains on China Disappointment
Grains are lower again Friday after funds sold hard in the grain and cotton markets on Thursday.
It was in response to the lack of tangible agricultural purchase commitments from China during the summit in Beijing.
Will the funds continue to liquidate in the grains after the technical damage done?
He says, “Yeah, we’re doing some short-term chart damage here and things just are trading pretty ugly today despite the higher energy markets. The grains had rallied on hopes of China business and just the fact that we did not get any news the funds didn’t like it,” he says.
How Low Will Prices Fall?
Varilek sees the grains slipping back into the recent trading ranges but there is good chart support on the bottom side of the ranges that should hold going into the growing season.
“So I’ll be looking for Sunday night’s trade to kind of start to hold as funds usually liquidate in three day waves. We might try to find some value buyers, some end users in some of these markets. So not ready to write it off and say, we got to go find some new lows here,” he says.
