Cattle, hogs and wheat were higher early Monday with corn and soybeans on both sides of steady.
Cattle Higher Early Monday
Live and feeder cattle futures were higher early Monday after live cattle had lower weekly closes.
Brad Kooima of Kooima Kooima Varilek says live cattle failed at the 50% retracement levels and gap area on the charts around $230 on the October. Now he says the 40 and 50-day moving averages are also around that level.
He thinks the market may try to test that level in the short term. So, what will it take to get through those areas?
Unfortunately, Kooima is doubtful the market can get above those levels, “I am no longer saying that you’re in this long-term uptrend anymore, right? I mean, I know there’s some people that are, you know, now we’re never going to go down again, whatever. You’ve done enough chart damage from a big picture standpoint so maybe it’s sideways here for a while. To say you’re in this screaming uptrending market, not anymore.”
Higher Cash Fails to Push Futures
Part of the reason Kooima is apprehensive about futures making a big run is that the market could not get above those levels with the help of last week’s higher cash.
Cash was mostly $235 to $236 in the North and South.
However, he points out that August is one of the months where there is usually convergence, even last year.
“Whereas we’ve gotten really used to, you know, futures $5, $8, $10 under cash, sometimes even more than that. You know, $8 under is kind of where we started out there in July with cash over the futures. And now we’re, I got $236 last week and we’re at $232.60 right now. So we’re at a little bit of a narrower basis than we’ve had for a while.”
So he says the cash market could rally to $242 and October could stay flat.
Kooima is optimistic the cash market will rally this week with slaughter at only 509,000 head last week and the smallest beef production for a non-holiday week this year.
“You’ve got a producer that doesn’t like the prices as some of these cattle don’t make any money at $235, so they’re holding and don’t forget we got smoked here with this heat up in the northern part of the cattle belt where now we’d like to get a little bit of that weight back on the cattle that didn’t die,” he adds.
Boxed Beef Under Performs
The other concern is that with the packers cutting weekly slaughter to only 509,000 head is the the boxed beef values have been slow to perform with Choice cutouts only around $364, up $2.98 last week.
Demand is difficult to estimate but Kooima says since beef is a perishable product the demand is measured by how much can be sold and at how high of a price?
He says wholesale beef prices are still good but the middle meat demand is slower.
“The sirloins in particular, but the ribeyes and the tenderloin. Demand sucks for that too, by the way. Strip steak, stuff like that. That slowed up. Why? I don’t know but maybe the effects of fuel cost,” he explains.
He says hamburger is still moving but not higher priced cuts, so he hopes the lower retail prices and getting out of the summer doldrums will help.
Another Plant Dark
Adding to the lightly cattle slaughter is the fact that the Grand Island, Nebraska plant is dark today.
He says, “It’s not broke down or anything like that. They’re just dark. So I think you still got a packer and not just JBS, but I think you still got a packer generally that’s kind of dug in. He’s trying to get his margins back. He’s trying to kill the bare minimum that he can get by with until he can get some leverage back. So hopefully that’s not for a while.”
Declining Open Interest
The other factor keeping a lid on the futures is the declining open interest, a sign that funds are not in heavily buying cattle.
Kooima says with all the uncertainty in the market the funds have stepped to the side.
The talk of plant strikes, rumors of another plant closing last week, the border reopening and the like have pushed the long speculator out of the market looking for other markets to invest in.
re have been egarding plant strikes, possible closures, the border reopening and the like, the funds I’m talking about uncertainty, and
“It started already at the June, when they were rolling out of the Junes, they didn’t replace near as many August. Now as they’re rolling out of the August, they’re not replacing anywhere near the level in October. I mean, our open interest is at 285,000. It was at like 450,000 just six months ago,” he explains.
While that may have given the funds some ammunition to buy if the market acts good enough, Kooima says October will need to get above $230 for get the funds back in the market.
Nearby Feeders Chase Cash
Nearby feeder cattle futures were higher last week chasing the cash index which is at $356.00 after today and September futures are at a $12 discount and August is also at a discount.
“August looks a little undervalued to me. On top of that, the seasonal for feeder cattle is to bottom in the third week of April and top the first week of August. So obviously what corn’s worth and things like that have a lot to do with that. One of the challenges right now in
the short term on the feeder cattle thing is that the north just doesn’t have a lot of sales. There’s just not a lot of cattle. And that’s true for every year during this time of year. So you’re getting some of the cattle that are influencing the index more out of the south and they’re
cheaper than the cattle are in the north.”
Hogs See Short Covering a Second Day
Lean hog futures were higher for a second day with some short cover as the market is oversold and October hit a four week low last week.
Kooima says hogs look undervalued but go down easy with poor global demand, except for Mexico. Plus, domestic demand has been disappointing.
“You know, one thought with the, where they’re priced in the retail space versus beef, it would have helped them all summer long. But we have enough hogs and it’s, you know, with the way that the market is dissolved into, there’s hardly any cash anymore. It’s harder and
harder for me to figure out,” he adds.
Seasonally the market has a hard time rallying as well but he’s hopeful August will get above $100.
Corn, Soybeans Chop Pre-WASDE
Despite the wheat market rallying on Black Sea export concerns, corn and soybeans were chopping on both sides of steady early Monday.
Kooima says non-threatening weather is bearish but the market is holding ahead of the WASDE.
He thinks the surprise could come in the acreage as FSA certified acres will be incorporated and with high fertilizer prices this spring that could have trimmed corn acres in areas that don’t have livestock manure available.
Plus, the ability to insure soybeans this year was better than in past years when it was easier to buy insurance on corn.
However, the government has leveled the playing field on premiums and coverage, “Where you could also do a pretty good job of managing at least a lot of your risk with soybean acres.”
Last year USDA found corn acres all the way through the final report and that has the trade thinking that will happen again.
For now corn has been holding $4.60 on the Dec and Nov soybeans around $11.70.
