Grain and livestock futures opened lower on Friday but corn and wheat quickly tried to bounce.
Cattle Open Lower But Continue to See Resilence
Scott Varilek, Kooima Kooima Varilek, says cattle saw some early profit taking pressure after contract and record highs again Thursday but also awaiting cash direction.
However, the cattle futures have been resilient and every break seems to get bought, which is a good sign of a bull market.
This week’s rally has been sponsored by ideas of $250 cash trade and producers have been digging in their heels so very little trade has occurred.
The other supportive factor is higher boxed beef values with the Choice cutouts up $15 for the week.
Varilek says boxed beef is getting a push from strong Labor Day buying and packer kill cuts but he thinks consumer demand continues to be robust.
What Could Break the Cattle Market?
Varilek says everyone wants to know when the market will top but its nearly impossible to predict.
He thinks the key will be when producers lose their leverage in the cash market and so far there haven’t been any signs of weakness.
“Rebuilding this herd will be a slow process because many older ranchers are looking at this as an opportunity to get out of the market and who is going to be able to enter the cattle business with replacement costs so high,” he explains.
Although the market will be watching for black swan events or the reopening of the Southern border to Mexican cattle imports as a possible cause.
Lean Hogs Consolidate
Lean hog futures have consolidated the last couple of sessions after hitting chart resistance and Varilek says the market is getting past the tight supply situation as they are hearing that slaughter numbers will start to climb as fall sets in.
October hog futures are setting at a discount to the cash market but he doesn’t think they will be able to close that gap.
Varilek isn’t in the camp that hogs are following cattle because if they were he thinks the hog market would have rallied even more.
Grains Trying to Confirm a Bottom?
Grain markets put in a strong performance on Thursday with short covering and help from strong exports and that left some wondering if the markets were trying to bottom.
Pressure returned overnight and on the opening as many contracts ran into chart resistance, including December corn at the 10-day moving average.
Varilek says it is too early to put a low in the corn and soybean markets and while there may be some positioning or buying ahead of the Aug. 12 WASDE, the seasonals and the record crop will both be headwinds for the markets.
