Grain and livestock futures were higher early Monday.
Cattle Rally on Bullish Cattle on Feed
Live and feeder cattle futures saw a gap higher opening on Monday morning on a bullish USDA Cattle on Feed Report.
August placements were a record low, down 9.2% from last year and the lowest in the series back to 1996. The on feed number was only up .7%, so both below expectations.
Joe Kooima of Kooima Kooima Varilek says the report is the kind of trigger needed to change the momentum in the cattle market after a week of uncertainty that triggered selling and caused long speculators to stay on the sidelines.
When Does the Market Hole Come?
With the big drop in placements when will the market how come and how much will that help push prices?
Kooima says, “We’re looking at that February, April timeframe, what would be kind of the first guess looking at some of the weight breakdowns there. Looking at the placement numbers, I mean, even Nebraska and Iowa placements were not up that much.”
He thinks with the tight break evens, especially the last couple of weeks, producers have decided to feed cattle bigger rather than take the risk of buying replacements for the feedlot.
“I think that’s where some of this placement pattern kind of dove off as well,” he explains.
Cash Market
The cash market was slow to develop last week at ended at mostly $225 to $226 in the South, which was steady. The North was at $222 to $223 live, steady to $1 lower with dressed prices at $350, also steady.
However, cash appreciated through the end of the week all the way to Saturday.
“It’s interesting on Friday, we just didn’t see anything coming out of the south at all. Saturday afternoon I was starting to get texts saying there’s some $226 being passed in Texas and Kansas. But they did take a little bit of that which put them fully steady with last week,” he explains.
Kooima says with a $6 to $8 break in the front month futures the Southern feeders did a good job of digging in their heels.
“The best I heard in the North was western Nebraska kind of $222.50 which I would call that a step in the right direction from the last week but we would kind of sold too many hooves there to be in the middle of the week to maybe try to capitalize a little bit more on what the south was doing there Saturday,” he adds.
Better Cash This Week?
The appreciation in prices through the weekend has Kooima calling cash a little better this week, building off the momentum in the South on Saturday.
“I told a few guys last week that I hope the north doesn’t blink first, so we can wait to see what the south will do because they have better leverage down there a little bit smaller numbers. So, I think that’s going to put a little pep in our step this week and certainly with the futures doing what they’re doing today, I would imagine that we’re going to be a little bit more stubborn here in the north. I don’t think we’ve backed up too many cattle,” he says.
Plus the weekly kills have been big enough the last few weeks, packers do not have a lot of inventory to work off of. However, producers in the north have still been struggling with the lack of leverage.
“It’s just losing Joslin is still kind of a hiccup there, a little bit of a black eye. So we’re going to still battle that to a certain degree. So I do think the south has a little bit better leverage than what the north has. So I hope the guys here in the north can kind of wait to see what the south wants to do and we can kind of be on their coattail here for a little bit. That’s just what we’re going to have to do,” he states.
Technical Signals
The futures market rally on Monday helps to negate part of the lower weekly closes last week but what is Kooima watching technically for this market to be able to build on the momentum.
“I have a long speculator is still missing. We saw that last week, Tuesday, Wednesday, Thursday, with the uncertainty that was going on. We were really over-promised and over-hyped about the administration saying something on Friday afternoon after the market had closed. We were almost convinced that it was going to be banning beef exports, all that type of stuff has been over promised and didn’t show up,” he says.
He is hopeful Monday’s strong market action will trigger some fund buying.
“The first thing to watch here is the gap that we left today. If we can hold that in a few days, we’re going to start measuring off of that. So we might maybe backpedal a little bit into it, but I think with a severe discount to cash that we have, that might be too tough of momentum to go back and check out this morning’s gaps there. So hold this gap for a few days,” he explains.
He thinks December live cattle need a close back about $223. “We got up there last week, Tuesday and open interest increased when we got December above $223. But I think some of the funds stepped out with the uncertainty with the interest rates and so forth.”
But he says holding the gap for a few sessions may be the key to attracting some of the long speculators, especially if they start diving into some of the numbers that were posted with the Cattle on Feed on Friday.
Feeders the Leaders
The other key to keep momentum going is for feeders to retain leadership.
Last week the cash market was strong but the algo traders were spooked by headlines that USDA was reopening the largest port to Mexican feeder cattle imports on Sept. 24 at Santa Teresa, New Mexico.
“We were kind of scratching our head a little bit when that was released on Thursday. I kind of assumed that that was what was going to happen. We read that after the first port opening, if things progressed as they should, then within 30 days, they’re going to open up this one. So unfortunately, it was just a headline that had to show up in the AI bots,” he says.
Cash Feeders Strong
The cash feeder market though has stayed strong which is encouraging according to Kooima.
“Some of these break-evens are really high. It seems really odd that we’re paying as much as what we are for them. But this won’t deter anything. We got Oklahoma City today with like 4,500 head. I don’t know if they’re all index cattle but nothing out of Friday’s report is probably going to hold them off they’re going to keep their pedal to the floor,” he adds.
The futures are severely undervalued with the index and came in on Monday at a nearly $7 discount to the index even though September futures expire on Thursday.
Hog Market Sees Short Covering
The hog market was also higher early Monday seeing a short covering bounce after new contract lows were scored on Friday.
The Lean Hog Index was at a 7 month low prior to the session at $84.02, down $1.01 and the cutouts were at multi-year lows.
“It’s tough. It’s the same beat of the drum the last several months where the funds are short. We can’t get the cash to have any momentum.
We can’t get the cutout to have any momentum,” he describes.
Isowean supplies are starting to increase and prices have dipped to the lowest level in months.
“So nothing for the funds to really get out of their shorts by any means. Sometimes these hogs are weird though. You look at a chart and by the time the charts start looking good, the market will fail and I wonder if we have that same little bit of momentum down here that the chart looks awful enough that maybe we are finally due for a bounce. The October front month did leave a gap a few days ago and we actually projected that gap measurement on Friday there so holding some of today’s numbers would help out technically
