Grain and livestock futures were mostly lower early Thursday.
Cattle Fall Ahead of Holiday, Report, Cash
Cattle futures were lower early Thursday seeing some profit taking after some technical chart breakouts this week, but also positioning ahead of the holiday.
The market is also awaiting cash news and the USDA Cattle on Feed Report says Scott Varilek of Kooima Kooima Varilek.
“A three-day weekend coming up, the ag markets are closed on Friday so seeing some red, but not a real volatile day,” he says.
However, he points out feeder cattle are over bought and live cattle were nearing that status.
“So its been a good charge and now we’ve got a Cattle on Feed report coming up so easy to see some of the funds step aside ahead of this weekend or they are fearful of entering short positions ahead of the report,” he explains.
Cash Quiet but Expect Higher
Cash trade had been quiet in the fed market but he expects a higher market around $260 live.
“The $260 kind of level is where we’re asking and thinking it’s possible. Just last week we were at $255 in the south and in the north for the start of the week maybe got a few better trades at the end. Suddenly we’ve got June cattle up here at $255.15, which is impressive,” he says.
He says the market was feeling like the cash was going to top and start to drift with the best demand behind it. Plus, Varilek says the futures closed the gap with cash and improved basis levels.
“That’s feeling a little bit better here,” he adds.
The packer are short bought and so he thinks that will also help support a higher cash market this week.
“There were several weeks they kept buying cattle for a month out, which was the month of June. The last week of June was the last bids they were buying for. We did not see that first week of July kind of offers out there. So, I haven’t heard a lot of July trade and I feel like packers don’t have a lot of cattle around them,” he states.
Packers will be out buying with the market closed on Friday and may have to come to the table because they can’t wait until after the report with the short week, according to Varilek.
Demand Uncertainty?
He doesn’t think the $5 drop in choice box beef yesterday, will spook any producers to settle for lower money but there is some uncertainty revolving around what the demand actually is.”
“We get right behind our best demand of the year and starting to get warmer and the grilling season peak is not there. I guess that’s, you know, we talk about are the steaks moving? I am hearing that packers aren’t paying that big premium for prime anymore, that that slipped a little bit. And then you read another source that says, hey, you know, some of these rib cuts, middle steak cuts are doing pretty good,” he explains.
The choice/select spread has widened out so that may be indicating at least some pick up in demand for the higher value cuts.
Cattle on Feed Expectations
The USDA Cattle on Feed Report is out a day early due to the holiday and average trade guesses from the CME put on feed at 102.5%, placements at 94% and marketings at 89.2%
Varilek says the on feed number, if realized, would be the highest since November 2022 but it is being compared to a tighter supply.
“Plus, we’ve changed how we feed the cattle. We’re making them very large. I mean, that’s the new norm. How many hundred pounds can you add on the backside to help make these cattle work? And that’s how we’re figuring them. You know, you see that video auction
yesterday and you’re looking at some of these prices and wow, just very impressive. You know, when you see 780 pounders bringing $426, it’s crazy. So you really start to jump that carcass weight,” he adds.
The fear is that with higher on feed numbers and carcass weights that producers will lose their leverage with the packer.
He says there is uncertainty in the placement number in the report.
“You have the north saying, hey, we moved a lot of cattle early because of drought conditions, just too dry. Pastures weren’t there. So our placements were feeling like they’re higher. We had some big runs and some sales this time of year where we normally don’t. But the South, you know, is looking at mid to upper-80% for placements with their wheat cattle moving earlier,” he says.
So it is a tale of two stories but he thinks the 94% placement estimate is too low and the market is set up for a bearish surprise.
NWS in Rear View Mirror
The New World Screwworm (NWS) cases are now at 12 and have stayed that way the last couple of days.
However, the market has already moved past the story.
“Yeah, I think we really were fearful of what the consumer would think if we got screwworm. I guess we’ve made it past that. There wasn’t a big knee jerk reaction. With only 12 cases are we just not reporting cases and just treating them? I would have thought that number would be higher,” he states.
So I think we have it. It’s out there. We’re battling it. But, yeah, we’ve kind of just moved on.
Feeders the Leaders, Funds Back Buying
Varilek is also encouraged the feeder market has been able to move past NWS and has resumed its role as the leader in the complex.
The futures have even moved above the cash index and funds seem to be back in the market.
“We had all these headline stories that we were whipping this market all around, now we’re calm enough to where we’re focusing on talking about cash feeders and how strong they are. So, yes that’s comforting,” he adds.
Hogs Fail After Reversal
August and some of the deferred contracts had a bullish technical reversal Wednesday, but funds used the strength to sell.
Varilek says, “The funds keep selling those rallies. I mean, we get a key reversal on a different contract, you know, a couple of different times and have one yesterday and then it just cannot follow through. There has not, there’s hardly been a two-day rally
The June contract expired in a sloppy fashion and may be setting the tone for the July.
He remarks that there are packers or commercials interested in buying the hog futures. “But they can just sit and let it come to them. They’re not chasing it.”
USDA did revise the kill lower and so there is some supply optimism but currently it is still a downtrending market.
Grains See Profit Taking Pre-Holiday, Fade Export Biz
Grains were lower early seeing profit taking after the higher close on Wednesday and heading into a three-day weekend.
USDA provided confirmation of export business to China, 4.85 million bushels, 4.4 million bushels to unknown, both new crop and then some corn business, 11.3 million bushels to Mexico. However, the market faded that.
“It could be a little risk off here. I mean, I think the demand is good and that’s what these markets need. And we’ve seen some basis,
especially in the corn, get a little better which is a sign we need some of that value buying to happen here,” he says.
Still he can’t confirm a low.
“I think that’s what we all want to do but we’ve got down trending grain markets and we’re going to need some more demand to really shift the trend,” he concludes.
Plus, weather is still seen as favorable. “If we get to July 4 and we still had a dry spell here that was lingering we could put some weather premium in but we just don’t have that ability to right now.”
He isn’t racing to buy the market unless there is more confirmation of China business or an improvement in basis.
