Grain and livestock futures ended mostly higher on Tuesday.
Cattle Make New Highs for the Move....Again
Live and feeder cattle futures ended higher again on Tuesday and made more new highs for the move. Tyler Schau of AgMarket.net says the push continues to come from cash and the USDA Cattle Inventory report. The five area weighted average steer price last week was up $4.74 at $239.44 and cash is above the futures market again which is pulling the live cattle futures higher. Feeders are also benefiting from higher cash he says, “Yesterday’s feeder calf index came in at $374 and some change, which was the third highest feeder calf index on record. We’re within a dollar of the record high set back in early October. So, you know, our opinion all along has been as long as cash is doing the work.”
Cash Higher Again This Week?
Producers have the leverage right now and with the board rallying Schau is pretty optimistic cash will be higher again this week. “You mention the producers have the leverage. The packer has not been making a lot of money the last four years, and that does concern us. The fact that they haven’t had that leverage. They’ve done a few things with the closing of the plant in Lexington. They’ve shut down a shift in Amarillo, Texas. We’re kind of waiting for the next shoe to drop, and that’s what concerns me as a risk advisor.”
Fear of Plant Closure
He says there is fear of another plant closure with the negative packer margins or a shift comes off. “Right now we’re not utilizing all the shackle space that we’ve got. There’s more capacity than there are animals to take up that space. And so if they do anything to maybe take some shackle space offline, close a plant, shut down a shift, and even that up to where they don’t have to push as hard to fill it, you know, that’s one of the concerns we’ve got hanging over our heads.
Will Cattle Fill the Chart Gap Areas Retest Record Highs?
He doesn’t like make those predictions but says with new highs scored on Tuesday it’s possible, “That’s definitely got the technical traders looking at the upside and probably got some buy orders. And if we start entering into that gap space you’ll probably see some sell stops trigger for some short positions or buy stops excuse me for some short positions and push that market higher and you’re definitely going to have the technical traders that are looking to fill that gap we get back up to those levels those highs you know that we set at the $378, $380, $382 mark back in October, and we can get through that. That’s very promising, But we’ve seen this play out before, and when we get to those levels, the buyers tend to kind of get a little nervous because that’s a lot of risk out there. If you’re buying cash cattle and you’re paying $380 a hundredweight on an eightweight, that’s a lot of cash you’re forking over.”
Will Funds Continue to Buy?
Funds are still long, not as long as they were at their record level, but are they willing to participate enough to push the market to new highs? He says, “I think they are. They’ve backed off. Their fund positioning is a little lighter than it was when we set those record prices. They may be wanting to jump in. That’s also one of the things that always scares me about the cattle space, though. The door gets a lot narrower in fat cattle and especially in feeder cattle when people decide they want to get out. The volume in corn and beans is high enough that you can kind of see a liquidation event occur, and it’s not quite so detrimental. And we saw that in October, November the longs were racing for the door and you couldn’t get out on a few days.
NWS Rumors the Black Swan
He says the key is to stay away from the New World Screwworm rumors that have tanked the market on any given day. “I think the market had a lot of hope coming into this fall that as cold weather came in, those rumors were going to just kind of dissipate. We weren’t going to have to worry about it. That hasn’t happened. I think that’s got quite a few people nervous in a lot of areas. I’m not privy to a lot of that information inside the USDA. It’s definitely a concern. You know, they recently issued a challenge grant for someone that can come up with a better way to manage New World Screwworm if it does enter the U.S. That tells us maybe some of the systems they have in place aren’t working as well as they had hoped or had prepared for.”
Soybeans and Bean Oil up With 45Z Guidance Out
Soybeans and bean oil rallied with the 45Z guidance released by Treasury. Even though it’s not finalized it gave the market some hope and certainty. “It’s still got to go through public comment period, which I think occurs sometime in May. It’s a 175-page document. There’s a lot of information in there. There really wasn’t anything unexpected in the report or in the news that we got today. There’s some stuff on land use changes. There’s some redefining that any tax credits have to be from domestically produced renewable energies.”
Corn Follows Soybeans
He says corn followed soybeans on the rally and saw some short covering. “There really wasn’t any news out of South America. In fact, weather probably looks a little more promising. Some of the yield expectations are bumping up a little bit in that region. So my guess, if I had to lean either way, was probably on the back of the 45Z guidance. You could throw in the fact that the dollar was a little lower, pushing back down after making a nice little run the last few days.”
Brazil Production Estimates Up
Meanwhile both StoneX and Celeres raised their Brazlian production estimates by 4 MMT. So he says the record crop just keeps getting bigger. “Yeah, its a big crop. It’s getting bigger. And that shouldn’t be a surprise either. I’ve been saying for the last three years that Brazil is the elephant in the room. They continue to add more and more acres. They continue to get good enough weather to produce big yields. They’re going to be around. Those production numbers probably aren’t dropping anytime soon.”
Outside Markets Risk On
Buying interest was also supported by friendly outside markets that saw a weaker U.S. dollar index and firmer crude oil prices. Big rebounds in the gold and silver markets today also fed the grain market bulls.
