Livestock were mostly lower early Monday with grains seeing a strong rally.
Cattle Slide Continues
Cattle continued to slide Monday morning in all but the nearby August live cattle.
Joe Kooima of Kooima Kooima Varilek says funds continue to pressure the futures and he anticipates that will continue after last week’s lower weekly closes.
“Last week was a letdown,” he says.
Technically, the market did some damage, with August testing and briefly breaking below its uptrend line before trying to recover. Lower weekly closes are also showing up on the charts, which likely has fund managers paying closer attention.
Lower Cash Contribute to the Pressure
Even with June coming off the board and August trading at a steep discount, the market faced tough sledding last week. Cash trade was mostly around $255, with a few at $256 in the North on a live sale basis, down roughly $3 to $5—and in some cases as much as $7—while meat bids were also softer at mostly $403, down $5. The South traded mostly $255 as well, down $5.
In the cash market, producers lost some leverage last week as packers relied on formula cattle, late-delivered cattle and purchases for a short holiday week.
Kooima says steady cash would be a positive outcome this week, but the large futures discount makes an immediate basis-driven recovery unlikely.
Seasonal Demand Fades
Demand has also been less supportive. May was decent but not strong, and without a stronger demand push, summer could return to the slower pattern seen several years ago he says.
Compared with the past couple of summers, demand has lost momentum across beef, pork and poultry, which has allowed the market to soften.
Feeders Also Fall with Index
Feeder cattle also struggled last week. After posting a new cash index high on June 26, the market has retreated sharply, including a roughly $17 drop in about a week and a half.
This week should provide a better test of feeder cattle cash values according to Kooima.
He says higher grain prices may pressure feeders, but limited feeder supplies could help stabilize the market even if momentum is lacking.
Futures are still trading at a discount to the index, which can shift quickly. Volatility remains high, with the market capable of moving sharply in either direction.
Funds Liquidating Cattle Futures?
The delayed Commitment of Traders report will be important to watch.
Given last week’s action, funds may have reduced some long exposure in feeders, especially with grains moving higher.
Open interest also suggests some liquidation may already have occurred.
Hogs Pressured by Higher Grains
Higher corn and soybean meal prices could also pressure hogs, though the hog market has recently shown signs of improvement.
August hogs saw the 10-day moving average cross above the 20-day moving average, which may have encouraged funds to cover some short positions says Kooima. For funds near record-short positions to cover more aggressively, the market likely needs to see lighter weights and at least some improvement in demand between now and October.
Weak Pork Demand
Cash hogs and pork cutout values have been largely stagnant since April, which has kept the index lackluster.
Because pork demand has been so weak, even a modest rebound could accelerate the market. Consumers may eventually shift toward lower-cost proteins, and pork could benefit if demand improves from current levels.
Grains Rally Sharply on Weather
Grain markets opened sharply higher, led by soybeans, with weather driving much of the move.
The market is focused less on the near-term forecast and more on the 8- to 14-day outlook, which shifted toward above-normal temperatures and below-normal precipitation over the weekend.
That type of forecast change is often enough to draw aggressive fund buying, even though many areas received good rainfall last week. In parts of northern Illinois, Iowa, east-central areas and southern Minnesota, rainfall may even have been excessive, which could become a bigger issue closer to harvest if crops experience prolonged wet conditions.
Heat and dryness in the European Union, especially France, are also being monitored as corn crop ratings there have dropped sharply in recent weeks. The impact is difficult to quantify, but the timing matters, especially as U.S. weather concerns and renewed China-related headlines add support.
China Tariff News Charges Market
China-related news appears to be a major reason soybeans are leading the rally. Reports that the U.S. and China may remove 10% tariffs have helped improve sentiment.
While many trade headlines have overpromised in the past, the combination of weather concerns and potential trade progress has strengthened soybean charts and encouraged fund buying.
There was also discussion about the U.S. and China creating a separate board of trade for non-sensitive products such as agriculture, apart from strategic materials like rare earth minerals. More details are needed before judging the potential impact, but it is another development the market will be watching.
