Cattle and hog futures were mostly higher early Monday, with grains mostly lower.
Cattle Follow Equities
Cattle futures are higher early following the big rally in the equity markets and fading the USDA Cattle on Feed Report.
Scott Varilek with Kooima Kooima Varilek says the financial markets are up and crude oil is down following President Trump’s post this morning that the U.S. is postponing a strike on Iran power plants and energy infrastructure for 5-days, signaling a de-escalation of the war.
The cattle market has been ebbing and flowing with the S&P and crude oil so the positive move gives traders some confidence that consumer demand for beef will hold.
Cattle Absorb COF
The cattle market was also absorbing the USDA Cattle on Feed Report numbers from Friday with the one feed total at 11.55 million head and at 99.7%, placements at 103.7% and above estimates, with marketings at 93%.
Varilek says the placements number though is being compared to some of the tightest cattle numbers in history and a time when the border was closed to Mexican feeder cattle.
“We’re comparing to a historically low number the year before and we break it all down 40,000 head extra placed is not as big of a swing as you’d actually think,” he says, “We’ve soaked up a lot worse news, I think, in the cattle market than that.”
Some of the extra placements likely came from drought and the need to place some cattle with the wildfires destroying grazing areas he adds.
“Cow-calf country is looking pretty dry right now and in pretty much an expanded area. Last year, different tone. We had some moisture. We were feeling good. It was a nice shot in the arm and now looking pretty dry to start the year. We need to see some rain, some thunderstorms start to move across. We’ve got the wildfires. I mean, that’s been kind of a headline, but even before the fires, I think that was already a story, just how dry we’re looking.
“But with a stock market this strong today, I think that’s what’s winning over in the cattle market. Maybe easing these energy prices consumers can start to feel a little better.”
Steady Fed Cash Trade
The futures already rallied on Friday despite a lower stock market being pulled up by mostly steady cash trade in the fed market.
Varilek says he is surprised to see steady cash with the heavier weights the cattle are carrying.
“I think that was the surprise that we did get steady cash. Now, we say steady cash, and that feels good to say, but it’s not like we have all of the packers out there beating down doors looking for cattle. It’s still slow moving. Our kills are still very slow. You know, we’re off the pace. You think maybe they’re really going to pick up some chain speed, and they don’t,” he explains.
Varilek says Greeley killed about 350 head on Friday but there is no word that the strike has been resolved at the JBS plant.
“They’ve only just killed a few hundred head here and there is all that we’re hearing just with some of their workers that are showing up. And it’s not like we have a good source of information for what’s the future there, what’s happening, is there any headway? Don’t know yet,” he states.
Cash This Week?
Varilek is hopeful cash trade can hold this week with some increased packer demand.
“There’s still a lot of optimism that hey demand is good packers are going to need some cattle we’ll get really going again by then and packers are going to be out in the market. So, it’s only been you know one or two packers long story short last week that we’re in hard enough to matter but guys were able to get some sold and take some bids because our show list did grow here a little bit in the north as we’re starting to carry over some cattle. So anytime you see some move, I think that just makes you feel just a little bit better.”
The caveat is packers have slowed kill to only 508,000 head last week, so producers are still working to get their leverage back.
However, he says packers are seeing some black ink with higher boxed beef values and demand ramping up for the grilling season.
“So I feel okay about cash yet because I think that there’s some packers that haven’t bought a lot of cattle and they are going to want some.”
Can Futures Break Through Resistance?
In this volatile environment Varilek says the technicals are not providing as much clear direction.
“I think we’re all reaching for what we can look at. Where can we draw some lines? We know that we’ve had this large uptrend and the long-term charts are still safe. It’s what can we do? Can we hold some of these levels here at the $230? If we start slipping under $230, does it get a little sloppy? We tried to form a little downtrend line. You know, trying to measure off of that. We kind of broke that. So we’re moving so erratic every other day that it’s kind of the market that stops get filled either side of the market. So I haven’t found a technical that’s just saying, hey, this is what we’re trading off of right now,” he explains.
Hogs Bounce But Funds Have Been Liquidating
Lean hog futures are up with cattle and the stock market Monday.
However, the futures have seen some long liquidation by the funds recently with the poor chart pattern and that caused a big drop in open interest.
“So the funds were heavy longs in that market and really unwound quite a bit last week during all of the outside market noise that we’re having,” he says.
Fundamentally though the market has been trying to price in lower numbers tied to disease and there is news circulating that packers could be cutting Saturday kills in April which would be positive.
“Kill cut in hogs will rally that product and and that can be tied to that contract in their formula that they have so might be okay that might help push this thing back higher,” he adds. He thinks that could push hogs back to test $110.
Hogs are also awaiting the Quarterly Hogs and Pigs report. The last report was bearish and so Varilek says there could be some nervous positioning ahead of that.
Grains Fall with Crude Oil
Grains futures were slightly lower early Monday in tandem with the correction in the crude oil market.
“Yeah, that has to be the lead indicator here with the energy markets much lower. It’s not like the greens are doing anything too wild today, just maybe a little correction,” he says.
However, as the market gets closer to the USDA acreage and stocks data at the end of the month, Varilek thinks the focus may shift away from the energy markets.
