Grain and hog futures were lower Monday, with cattle ending higher.
Grains End in the Red
Grain markets were unable to extend gains after last week’s higher weekly closes.
Brad Kooima of Kooima Kooima Varilek says it was a combination of continued non-threatening weather in the Corn Belt and lower crude oil on the possible end to the Iran war.
While there was some severe weather and storm damage over the weekend, there were areas that received some welcome rain.
Plus, inflationary fund buying has dried up as crude oil prices have fallen, which has contributed to funds liquidating on strength.
“Crude oil is in the mid seventies now. So that we’ve kind of lost that, that buying impetus too.”
Will Grains Hold Support?
Kooima is hopeful corn will hold the contract lows and while he says weather is a headwind, he hasn’t given up on the possibility of the market adding risk premium.
Plus, he thinks U.S. farmers planted less corn than USDA estimated in the March Planting Intentions report.
but says weather is just too much of a headwind.
“We’re seeing the basis narrow up a little bit,” he adds.
December corn did close below the $4.40 level which was a big support area and so the corn market could take out the contract low of $4.34 1/4.
“This is the lowest close of the move by a quarter of a cent, I believe,” he adds.
Soybeans Try to Hold With Higher Bean Oil
Soybean futures were higher during the session and held better than corn and wheat futures with the help of a recovery in the bean oil market. However, meal was lower and closed below $300.
Still Kooima says record crush and hopes for more China business are supportive after rumors last week of big purchases of U.S. soybeans. USDA only confirmed 4.85 million bu. of new crop through a flash sale.
“I’m waiting for more confirmation that indeed China had come back into the market and was starting to buy some beans, but we aren’t able to confirm that just yet,” he says.
He says with China buying very little U.S. pork and their low prices he thinks eventually they will need U.S. soybeans.
“They’re starting to liquidate but they’ll need the feed. So that’s where the soybean component comes in. It’s hard for me to sell the bean complex down in this level,” he adds.
Cattle Make Fresh Highs on Higher Cash
Live and feeder cattle futures made new highs for the move early in the session but ended well off highs.
Kooima says the initial push came from last week’s strong cash market at mostly $258 to $260 live sale prices in the North and South.
He says. “You know, the feedlot resolve, I was proud of everybody that hung right in there all the way in through Friday, Friday evening, almost early evening before we finally traded some cattle. The bid started at $256 then they went to $257 or $258 and those that held
out, $260 was paid, and not just by one packer either. There was even a little bit of $260 in western Nebraska down into Kansas.”
Packers were short bought as many of those cattle will be slaughtered in the first part of July.
“So June still looks to be, in my opinion, a little bit undervalued.”
Cattle on Feed Supports
The USDA Cattle on Feed Report was also supportive with placements down 9.7% from a year ago, which was better than expectations.
It was offset by lower marketings by 11.3% and higher on feed totals of 2.1% above a year ago.
He says back in the day the marketings figure was more important than the placements.
“We do have like 13% more cattle with 150 days and longer on feed than we did a year ago at this time, 13%. We’re feeding them longer. We’re making them bigger. That’s what we’re doing to make up for the lack of production. We’re making them bigger, even though we have less of them and beef on dairy is creating the higher on feed total because they are on feed longer than a conventional steer,” he adds.
Placements were at 104% in Iowa but Nebraska and Texas were only 83% and Colorado was at 117%.
Cattle Futures Make New Highs?
While the futures hit for the move highs the markets could not close at the highs and ran into chart resistance.
Will the markets be able to get above those levels?
“Well, we avoided a reversal by a whisker. Maybe an hour before the close, we actually had August and October trading lower for the day after being $300 plus higher. So that was a little unnerving, people ask me, well, don’t they know what the cash is like?”
To which Kooima replies that the traders do know. However, he thinks attracting new buyers at these levels is difficult.
“But I wonder who you’re going to recruit exactly with this decline in the open interest here. There’s so much uncertainty. There’s so much outside news going on that a few of them, I think, took their ball and went home. Now, we did see some fun buying last week, of course,” he adds.
So, will the market make new highs? Kooima thinks it will be difficult in the short term but he thinks it is possible.
“But again, if it’s going to happen, I believe it’s going to happen before the 4th of July. How about that for a timetable?”
Boxed Beef, Choice Stalls at $400
Choice boxed beef also stalls around the $400 mark, which is a concern.
“The Choice boxes are within a dollar or two of a year ago the same time and a year ago cash cattle were more like $230. The reality is the packer margins are negative,” he says.
Plus, the Choice and middle meats will suffer after July 4th and shift to more hamburgers and hot dogs.
“So I think that the packer’s anxious to see whether the cutouts can improve or even hold at a time when their margins are very very poor.” he states.
Ft. Morgan Remains Dark
This could be the reason that the Fort Morgan, CO plant is still dark.
Kooima says, “Theyve got the heavy hitters in there negotiating. I understand it’s the union bosses themselves and I wonder if you’re the packer are you incentivized greatly to settle this deal when the margins are this poor probably not,” he adds.
So negotiations are ongoing. “I don’t know how much progress of any has been made.”
Lean Hogs Mostly Lower
Lean hog futures were back lower on Monday as the cash index has basically stalled out and so have the cutouts.
Kooima says, “The cash is the same place it was two months ago right. There is something wrong with a market where you kill 480,000 of them a day and some days you don’t even know what the price of them are because of a lack of confidentiality. So the complete lack of price discovery is part of the problem, in my opinion.”
Global demand has also been softer with China only buying limited amounts of variety meats.
Mexico has even been uncertain lately especially with the USMCA talks becoming tense at times.
Kooima says even with higher priced beef it has not been able to move the demand needle for pork.
