Cattle are sharply lower Monday with hogs following. Grains are higher.
Cattle Tank on Economic Uncertainty
Cattle futures are sharply lower on Monday with feeder cattle touching limit down at one point on economic uncertainty according to Brad Kooima of Kooima Kooima Varilek. He says futures gapped lower on the open and traded sharply lower with live cattle gapping below key support at the 50 and 100 day moving averages. “Uncertainty is bearish cattle. That’s just what it is, folks.”
He explains the risk off selling in the stock market, specifically the S&P, and higher crude oil futures are heavily weighing on the market. “You’re looking at energy costs. The fear here would be that, you know, if you’ve got a budget, so much is going to go to put gas in your car to go to work or cost to heat your home, all the rest. You know, is that going to translate into creating some recessionary worry or you know disposable income changing,” he says.
Funds Liquidating
He says this isn’t a fundamental or a supply problem but fund managers are liquidating due to the fear in the market and the volatility. “You’re going to go like gee whiz i think maybe I’ll find some calmer water to swim in instead of trying to figure out you know day to day what’s going on here especially when so much of it is impacted by a 24/7 situation like we have here in the Middle East right now.”
JBS Plant Dark This Week
Also adding pressure to cattle futures is the news that the JBS beef plant in Greeley, CO, will be dark this week. Kooima says, “I would say that they’ve reached a significant impasse in negotiations. The way the deal was set up, the way the agreement had been, we all know that the union had voted a couple of weeks ago already to strike but they were willing to keep working while they negotiated.”
However, the vote on Friday was to strike in seven days he adds, “They are required to give a seven day notice if they were going to walk out so that was the vote that happened on Friday afternoon they voted to walk out so they gave the management seven days notice manager said you know what don’t bother even coming in for those seven days so they closed at Greeley.”
He says their other major plants are going to kill Saturday, so that’ll make up a part of it, not all. Negotiations will resume and hopefully they will reach a resolution. However, he thinks with packers losing money it may give the packer leverage.
“I mean, it doesn’t take too much of an imagination to think that if you’re going to have a work stoppage, maybe now wouldn’t be such a bad time if you’re management. On the other side, though, you’ve got worries about, you know, can you retain your employees? You’ve got to be a reliable supplier of beef to your customers.” So he says it’s complicated.
Lower Cash Cattle
Cash trade also developed at lower money on Friday with mostly $240 paid in the South and North, so down $2 to $4 from last week. Some dressed trade at $$380 was also reported, down $3.
“I was kind of relieved that we could get $240. Bought a lot of cattle around here at “240. I’m kind of intimated with you here on that. I worry a little bit that we’re not killing the available supply. I know supply is tight, but is it this tight? These kind of slaughters that we’ve had the last two weeks, especially, my goodness. I mean, you would say that it was Christmas. I mean, that’s how light that kill has been. And if you look at the average weights, they’re big. We did sell some cattle at $240, which is lower, but at least we got some cattle sold.”
Futures Take Out Support
The live cattle futures took out major chart support on Monday so how much technical damage is done? Kooima says, “We gapped through the 50, the 100 day moving averages. Halfway back on April cattle is in that $225 range. And that’s another $3.50 lower than where the market’s sitting right now. I think we go at least there.”
He says he hopes the big futures discount to cash will eventually hold the market.
Hogs Fall With Cattle, But More Resilient
The hog markets fell with cattle futures Monday morning but have been more resilient than cattle because of the growing disease issues in the country.
“There’s another round of disease, you know, affecting isowean prices, feeder pig prices, you know, for what the prospects will look like for the kind of supply we all have for fed hogs in the summer when demand typically is quite good. So, you know, I think that that’s part of the reason why we’re here already,” he says.
However, the other supportive factor is pork is a cheaper protein than beef.
Grains Make New Highs for the Move
Grains markets were all higher Monday, although off of overnight trade. The markets have been hitting new highs for the move adding in inflationary fears says Kooima.
“A lot of it is higher crude oil. Plus, are we going to be able to get normal export activity out of that Middle East area or not with the Strait closed? Will the cost of fertilizer impact our new crop corn plantings? December corn is stronger than the old crop today. I’m sure that that’s part of the reason.”
However, he cautions that when crude oil starts to move the grain market could quickly retreat so he is suggesting putting in price floors with options.
How Far Will Corn Acreage Drop?
With concerns about getting the last 10% to 15% of fertilizer in place and with soaring prices there may be a switch out of some corn acres. How much?
Kooima says in Iowa many farmers can use manure so planting intensions won’t budge. But nationally, he is projecting 93 million acres of corn verses the 98.8 million planted last year.
“There’s some areas that will be 20% loss on some of the fringe parts of the corn belt, especially when you get a little bit south and then get into the southeast. Sorghum’s had a big rally. When you get in these areas that are subject to this rust and all this other disease stuff further south, they’ve really got hit with that. They’re probably looking for a reason anyway to get out of it, whether it’s fertilizer or not.”
