Markets started Friday lower except for cattle but after 10:00 am Central Time the cattle futures tanked.
Cattle Bounce Early
Cattle futures were slightly higher early on Friday in tandem with the stock market soaring into record territory and plunging crude oil futures with word the Strait of Hormuz has been reopened.
Scott Varilek with Kooima Kooima Varilek says that provided and early bounce for cattle after two down days tied to profit taking but then the market crashed.
He says with prices at record highs the risk is high.
“We’ve got an on-feed report coming up with 100% on-feed estimate, and we are $50 higher than where we were last year on the same cattle on-feed. So we’re at some impressive levels here, Michelle.”
Is a Top In the Cattle Market?
The cattle market was overbought which triggered some profit taking and with futures tanking on Friday it will confirm a lower weekly close and reversal off of record highs.
So will that also confirm a top in the cattle market?
Varilek says, “That’s going to be the question here because it it looks like hey look at the time of year we’re in we’re at the time of year we can put a high in charts almost look like it you know we drove through make contract highs closed all the gaps and then what was the encore not much we drifted a little bit lower. So, for about the you know 75th time we’ll try to call a top in this market but it I don’t know that we want to try to do that it’s just the potential is there for it you know,” he says.
April live cattle futures did get over $250 and the contract was slammed with a bunch of deliveries as well which is bearish.
“We’ve got 20 deliveries and three retenders on the market so we are just seeing that starting to act a little bit more sloppy here,” he adds.
Line in the Sand for Funds is $243
The line in the sand on a technical basis for the funds to defend their longs is $243 on the June live cattle chart says Varilek.
“Funds don’t sell highs. They don’t buy lows. Once the chart starts to flip and their signals start to go off, whether it’s crossing moving averages, whether it’s coming off of being overbought, then they start to unwind positions. And it kind of sounds like around that $243 area on the June is
the spot that they’re looking at,” he says.
As of mid-session that low had held but for how long?
“There’s the old saying never be short June cattle in the month of May. Yes we’re in different times now you know it’s going to be wild as high as we are but that’s that’s how the market could feel so long story short $243 is a spot that I would think that we need to hold for that,” he adds.
Fear of Border Reopening
Fundamentally what has spooked the market is the fear of USDA announcing the border reopening as Secretary Brooke Rollins will be announcing the ground breaking of the New World Screwworm facility in Texas on Friday morning.
The fear is she could also announce the resumption of Mexican cattle imports.
Varilek says, “I mean, will there be an announcement? Will there not? We’re just kind of all hands on deck, kind of watching and wondering what she’s going to say. So going down for some groundbreaking of the facility. But you just would expect that she’s going to say something.
Okay. What kind of plan are we going to softly open a port and get some cattle coming across? And I think that’s what we’ve been talking about for a couple of weeks. So it’s not brand new, but I think that’s our expectations is that she will say something.”
He thinks the timing is odd as the weather is getting warmer which more easily allows the fly to migrate North versus the winter time.
However, it won’t be as big of an impact as feared due to the staggered reopening and the fact Mexico has developed its own feeding capacity.
“You know, they’ve been able to kill the cattle down there and ship the meat up here. So they may not be as eager to send near as many numbers as what they had planned before. So I feel like it’s negative to the market, but maybe not as negative as it probably used to be months ago.”
Cash Disappoints
Cash trade also developed on a light basis on Thursday at $248 live and mostly $388 up to $342 dressed, which is steady money with last week but a disappointment to the market.
“I mean, it was last week. It was these $248 bids and only one regional out there getting some $250, maybe a little disappointing. And I think everybody wanted that round $250 number so we could just feel good about it. It would have traded if it hit. Packers really dug their heels in and they’re sitting at $248. And now we have some sloppy trade this week. A lot of $248 starting to trickle around. I know several people have taken it and a couple dollars off of $250 is still a great price. These cattle are going to probably make some money up here because we’ve got extra days on feed. We’re making them bigger. Hard to say pass on that.”
Cattle on Feed Report
The market was also seeing some positioning ahead of the USDA Cattle on Feed report which is expected to be somewhat bullish.
The on feed estimate is 100%, placements at 93% and marketings at 94%.
“The South placements are going to be much lower and that’s, what’s really pulling this down. So, so that feels okay. You know that, Hey, when we’re. We’re still seeing the tight numbers, the on-feed number.”
Next month that could change as some of the feeder are being moved off grass and wheat pastures early due to drought.
Feeder Cattle Cash Index Hits Record High
This week the feeder cattle cash index hit a record high of $379.09 which is also supportive.
“That’s been strong. And feeders have been what’s bailing out this market. You know, that’s still the case.”
Lean Hogs Make New Lows
Lean hog futures are down a 9th day and making more new lows for the move but will the market find support soon on the charts?
Varilek says, “Hogs are trendy and it’s making a third leg lower. So Elliott Wave people, chart people, you might look at that and wonder, okay, so when it holds, you almost need to wait for that confirmation before you can kind of really jump into that market. Let it trend lower here. I think that cash and cutouts have been a little bit sloppy here looking for that to get better I think here rather soon.”
He bases that on the disease issues in the herd and eventually that will produce a marketing hole.
Grains Tank as Strait of Hormuz Opens
The grains are all lower on Friday taking out war premium with the Strait of Hormuz opening back up.
Varilek says, “Crude oil down $10 here today. Grains did put a little bit of premium on for that, and now we’re just taking that off. The equities are impressive how they can rally on back. So, as of now we’re feeling this war is going to stop or get better but not super confident. And wheat could not take out the April highs so it saw some profit taking and so is the rest of the grain complex.”
