Livestock futures were higher early Monday with grain markets quietly mixed.
Cattle Bounce After Ugly Week
Cattle futures surged early Monday with the rebound in the stock market and after last week’s ugly lower weekly closes. Dec live cattle were down $6.90 and Jan feeder cattle were down $13.40 for the week.
Last week’s break in the futures was largely tied to the steep drop in the cash markets. So, the key is will this futures rally hold?
Joe Kooima with Kooima Kooima Varilek says its difficult to say because the fundamentals are still sluggish with the north seeing heavy weight cattle that have not been able to find a home.
“So that was kind of the name of the game last week. And, you know, that that big rally that we had that took, what, two months or a little bit more. We took it out in two weeks. Those are tough markets to see follow through on but Friday’s exhaustion just stopped the selling,” he says.
Cattle Technicals
Last week live cattle futures filled the gap on the charts left after the Sept. 18 Cattle on Feed Report and closed below those chart areas, while the feeder cattle futures also filled the same gaps and closed above those chart areas.
Kooima says that is making it even more difficult to determine if the bounce is going to hold.
“So it was difficult to navigate because if you’d see the live cattle go and fill their gap and go below it, then sometimes the feeders will kind of do the same thing on their same charts. So it’s difficult to navigate this marketplace,” he says.
Cash Driving the Action
The cash market was down in both the feeder cattle and fed cattle markets last week.
The feeder cattle cash index was down $13.85 for the week and fed cash cattle were also sharply lower.
The south traded cash at mostly $218 live with the north at mostly $210 but a range developed at $208 to $212 live. Dressed prices in the north had a huge range anywhere from $325 to $340.
“We had $210 happening here in the north and then all of a sudden $210 or there was no market. I mean, we did have people that were willing to start saying, I need to get rid of these cattle. I have to get them gone. I’m going to. rip the band-aid off move to the next pen and go but that $210 turned into a no bid after a while on Thursday and Friday,” he explains.
Will Fed Cash Be Down Again?
So will fed cash trade be down again as the producers have lost leverage to the packers?
Kooima says judging by how the cash bids just dried up on Friday he thinks the north hasn’t move enough cattle to clean up the show lists and get rid of all of the heavy cattle.
“So we carried those cattle into this week so judging by that it should be a tough market here in the north still unless the technicals want to play a big push higher like they did two and a half months ago. But it just seems like it’s a big stretch right now. So call me for a softer note in the cash, unfortunately.”
Financial Markets Spillover
While lower cash was the main problem for the cattle futures there was no denying the stock market crash played a role in the psychology of the market and caused some long fund liquidation.
Kooima says, “Stock market was a big part of it last Thursday, Friday, even up to last Wednesday. Today we’re seeing a nice bounce in the stock market. It’s money flow, a positive highlight there.”
He says it is tough to know if the stock market can stabilize to keep the funds from liquidating more of their long position in the cattle futures.
“You know, in December cattle, you know, three weeks ago, jumped through $227. I think there were net buyers when that happened. You know, they showed up pretty late to the party. Last week we were hearing that they’re probably looking to sell some. So, you know two extremes and they’re kind of on the wrong
side of it too. So once again it’s difficult to know exactly what’s going on here in the marketplace,” he adds.
So the first thing to watch is whether the cattle futures can close higher on Monday and then reassess.
Nearby Hogs Bounce
After another ugly week of contract and six year lows again last week, the lean hog futures were also trying to bounce in the nearby contracts.
Funds are record short over 50,000 contracts and so is this just short covering or can the market finally find a bottom?
Kooima says there may be a glimmer of hope as the lower cutout values have resulted in an increase in load counts and a slight uptick in cash prices.
“You know, Friday’s load counts and cash, they were both higher, but we did see maybe a little bit, a few extra loads get bought on Friday, which is, it doesn’t sound like much, but to me, it’s huge because you have a market that finally drifted low enough to a price that maybe it’s going to find some demand,” he says.
He says the December futures are now trading at a discount to the index which is also helping the futures to hold. Plus, Kooima is hoping for some type of key reversal to finally bottom the market technically.
Grains Mixed Ahead of Report
Grains futures were quietly mixed after a week of massive fund selling last week.
“So I was kind of surprised to see that the funds did flip everything around and go to the short side right now in corn. The market is oversold enough down here that I just don’t know how much more room there is to the downside,” he says.
Markets are positioning ahead of the November WASDE, which is released on Tuesday and the tri-lateral meeting to try to end the Black Sea war will take place the next two days as well.
“Everybody’s looking at the January report, but I think every one of these reports are still going to be very significant to stabilize this market, especially with what we saw last report there,” he states.
The average trade guess on corn yield is 180.3 bushels per acre, down .9 bushels from October. He says if corn yield comes down a bushel or even less that should help take away the ideas that the crop is getting bigger.
Soybeans are likely to see higher yields with the average trade guess at 53.5 bushels per acre, up .4 bushels from last month.
Plus, he points out grain markets usually try to bottom in November as harvest wraps up.
