Cattle and hogs were leaning higher to start Monday with grains mixed.
Cattle Bounce to Start a New Month
Cattle futures are higher to start Monday after lower weekly closes last week.
Funds were liquidating and taking profits last week and to end the month especially with news that another New World Screwworm (NWS) case had been detected closer to the U.S.
But are the funds done selling?
Scott Varilek with Kooima Kooima Varilek says he wants to take the market a day at a time due to the volatility and continued market moving headlines which have created some selling and chart damage.
“So we saw funds getting out of some feeder contracts unwound some of the live cattle still carrying a long here. However, the futures are at a discount to cash due to the negativity surrounding the market,” he says.
Is the Cattle Market Rolling Over?
He says that has left the market participants wondering if the futures are finally rolling over as funds have been selling on strength.
“Is this the big one, the one that we’ve got to chase lower and there sure is a group of traders that want that to happen and are ready to trade it. So, they add shorts, press it and then it kind of starts to recover and we have to look around okay what what’s the main story here?”
New World Screwworm Inches Closer to U.S.
The headline that tanked the market to end last week was a case of NWS was detected by USDA just 52 miles from the Texas border. Then late Friday there was a report of a six month old sheep with NWS only 31 miles from the border.
The market was fading that to start the day, but can the futures hold?
Varilek says despite the fact these aren’t the first cases this has been viewed as bearish due to the consumer possibly reacting negatively and hurting beef demand. So that has the algorithm traders selling on any headline.
“What’s the consumer going to think about it that that’s the the biggest fear. So every time we get it it’s lower,” he says.
Still, he thinks it is being over blown because NWS is treatable and not a food safety threat. So he is wondering when the market will figure that out.
“Well, Mexico has it. We’ve got record imports from Mexico on beef right now, so we’re not worried about that. Is it just because the public doesn’t know about it? I guess so. But for me, I’m not saying that this has to be the story that is the ultimate bearish story here that really ends us. Unless we get it really spun out of control by a consumer,” he says.
Fed Cash Lower Last Week
The other negative for the market on Friday was the lower fed cash trade development at $256 to mostly $257 in the South, down $4 to $5 from the previous week’s weighted averages.
The North traded $405 to $408 dressed, down $2 to $5, but live sale prices ranged from $255 to $259 late on Friday.
He says the showlists are tight, especially in the North so that should help support the cash trade this week and hopefully pull the futures back higher and into reality.
And the cash is trading at an abnormally huge premium to the futures, which should also support the board.
“I think that would be a shot in the arm. We’re trying to figure out who’s leading this market. Is it the futures or is it the cash and last week it was futures you know bringing those cash prices down and cash did firm a little bit.”
He thinks producers still have leverage as well with demand strong during the peak of grilling season.
Uptrends Are Still Intact
Many live and feeder cattle futures contract are trading below key moving averages but the long term uptrend lines are still intact, according to Varilek.
“When you zoom out on the bigger picture of all the markets, I mean, some of these trend lines are $205 for the live cattle. A confirmed shift in the trend you’ve got about $250 on feeders. So, numbers that are way below us,” he adds.
Drought Only Tightening Supplies
Plus, the supplies of feeder are getting even tighter with the drought and wildfires moving cattle off pastures early and driving a red hot cash market.
This means that some cows are also being culled and that continues to delay the rebuilding of the herd and making a bigger marketing hole.
“We finally got to where we’ve got profits happening all the way down to the cow-calf sector here and the beef producers can afford to expand. Then we get affected by some drought and these fires. That’s why we saw our big placements up in the last report we’re going to see them up again on the next report and that’s because we’re we’re selling off,” he explains.
Plus hay prices are starting to move up with supplies running short.
“It almost feels like the rains that are happening now just came a little bit too late. We’re not going to get that big bloom off the, you know,
the amount of grass that we’re going to get here. But it just kind of kicks that can down the road yet again here,” he says.
Hogs Try to Rebound
Lean hogs futures are trying to recover in the front end of the board after August hit a six-month low on Friday and the futures saw lower weekly and monthly closes.
Is this just short covering in an oversold market?
Varilek says, “That’s been kind of the theme. How many legs lower does this hog market have to have? You know, it’s been on five legs lower that it’s had with just a small recovery and then then back to down. And it just it’s been very frustrating because I think you feel like we’ve got something here.”
He says supplies are tighter but with the market settling to cash and a lack of trade it is a poor determinant for where the futures should be.
“You don’t have the ability to try to ask for higher if you had some leverage,” he adds.
Hogs have not been able to stay above $100 as the cutout has also remained under that level due to lackluster demand.
Corn Makes New Lows for the Move
Corn started higher overnight in tandem with crude oil up over $6 as peace talks have broken down.
However, it easily found sellers and pushed to new lows for the move after getting beat up technically last week.
“We’ve got July futures below where the May went and just can’t find any light. We’ve had wheat go to $7.50, corn still can’t go. So I guess we’ve got to turn to, yeah, the basis really never got strong at all, stayed weak throughout these rallies. So it must just be supply, but you should be able to at least find some value buying here,” he states.
So, he’s hoping the market can find a bottom soon.
Soybeans Still Sideways
Soybeans have stayed sideways even with some fund liquidation mostly following bean oil which was hitting new contract highs Monday.
With strong processing margins and robust biofuels policy that is helping to support bean oil as well as near record diesel fuel prices.
Varilek says soybeans have been sideways for about three month and may stay that way even with more acres.
“So we’ve got some good margins. You had mentioned the meal has rallied quite a ways here in the last couple of weeks. We’ve got soy oil rallying, so it’s been able to maintain pretty good. Even the fact that we’ve got more acres and we’ve got South America throwing out another record crap, we’ve still been able to do it,” he says.
