Cattle were struggling again Friday, with hogs also lower. Grains were higher.
Cattle Struggle to Bottom
Cattle traded both sides early Friday but were struggling to extend the previous days gains.
Scott Varilek with Kooima Kooima Varilek says after a bounce on Thursday many producers were asking if a bottom was starting to be forged.
“And I guess my short answer is no. I unfortunately don’t think that the bottom is in. We’ve got quite a bit of long-term chart damage. That has happened. And it’s going to be tough to overcome that. We lost the fund presence in this market. The open interest is very thin. It gets really hard to trade. That’s why we’re having these wild swings throughout the day. And now the last few days. Open interest has started to grow a little bit. It’s almost like we’re finding some more short presence,” he explains.
After the beating recently he says there are only a few in the trade that want to step in to buy as they aren’t confident.
“All of these rallies are getting met with selling. And that’s still some of the pressure that we’re having here.”
Technical Signals of a Bottom
So from a technical standpoint, what chart signals would indicate the market is bottoming?
He says, “You are almost are kind of grabbing them in tandem here. The technicals and the fundamentals, what’s that story that’s going to really entice somebody to want to say, hey, this thing has room higher, you know, for this whole rally up that we’ve had. We’ve been able to leave these uptrend lines in the dust. We were so far above them that you could feel comfort with those.”
The market has recently taken out all the key moving averages and the 6-year uptrend line.
“There’s still some uglier ones down there and we’re all hesitant to measure where some of these movements happen. I mean August is going to go off the board next week making October the front month there’s going to be a gap lower below this trend line that we’re up against and those measurements are going to be rough,” he says.
So, he thinks there market is still in correction mode and there is room to move lower. However, he says the first time fats hit $200 and feeders hit $300 the market and producers got excited but now these prices are feeling to cheap.
“We are entering into a time frame where we get some farmer feeders entering into the market looking for some calves from the fall runs and with the volatility that we have hey they’re forced to run some break evens and try to figure out what does this look like here,” he describes.
Cash Lower for the Week
Part of the rally in the futures late Wednesday and Thursday was tied to improving cash prices, which had started at $218 and then rose to $220.
“And as beat up as we are, if you’re hedged in October, you had a great basis. Some guys were selling at $218. And even with them selling there, Packers did jump up and pay $220. So it was like a feeling like, hey, they actually need some cattle. We actually, you know, maybe trying to gain a little average back,” he says.
But by Friday that had changed and $218 bids were tough to find and even the $220 was sharply lower than last week by $5.
Cash could trail lower again next week he says because beef demand starts to wane in September and weights have started to inching up again.
“We have big cattle that need to move. We had our heat stretch we were expecting this is really going to do some damage to weights but I think with the excellent feeding weather recently they’ve put a lot of that weight on,” he adds.
Beef Imports Wreck the Market
The bearish stories of another 300,000 MT of tariff free beef imports coming into the U.S. over the next 90 days has also squashed the market and producers spirits.
Cattle groups pressed the White House to change course but President Trump still signed the executive order allowing the action.
“So that’s just kind of overhanging in the market that the government is still putting their hands in there,” he says.
That rhetoric continued Friday morning from President Trump and created even more uncertainty as he talked about other steps to help the rancher like shining the light on the big four packers.
Varilek says, “So what is he going to do is he going to try to break up the big four which would create all kinds of uncertainty and change this market?”
While cattle producers have complained about the packers for year if the government steps in to break them up it would be negative according to Varilek.
Trump also indicated efforts to deregulate some of the smaller packers and locker plants that are state inspected and face tighter regulations than the large four.
“So, hey, let’s try to loosen some of that up so they can market some beef and be more competitive in the markets. So maybe that’s the thing that would help. Yeah, I think we’re just all still nervous on what it’s going to be. Probably going to be some announcements next week on what some of these details are. So we’ll all be ears to that. And I guess trading lower today with that uncertainty,” he says.
Border Reopening Adds Pressure
The reopening of the border to Mexican feeder cattle on Monday at Douglas, Ariz. has also been bearish. Around 700 head a day have crossed into the U.S. and USDA says it will open the next port in New Mexico within 30 days.
The inspection process has been working, so it looks like the numbers will ramp up quickly.
“So definitely moving forward with more numbers,” according to Varilek, “And I’m still of the opinion that those calves want to come this way,
you know, more than we probably initially expected. Because those cow-calf guys there, they didn’t have the leverage when that border got shut. They were making half of what they were getting for a calf before the border opened. I have to believe they want to start shipping some North to get higher prices,” he adds.
Hogs Fall Despite Futures Discount
Lean hog futures continue struggle to make gains despite a big discount with the futures to the index.
However, Varilek says with cash and cutouts both lower the market cannot catch.
The only upside is producers are able to fill barns with lower priced feeder pigs and isoweans than this summer and that has helped their breakevens.
He says hogs were never able to capitalize on demand when beef prices were at record levels.
Grains Hit More Contract Highs
Grain markets were higher again Friday and hitting new contract highs.
The market has seen fund buying with the perfect storm of fundamentals supporting the rally. So how high will prices run?
grains, more new contract highs, three-year highs in wheat and corn. And everybody wants to know,
Varilek says, “I’m trying to look at some of the chart measurements. I’m looking at $5.60 on the Dec corn to $5.70. There’s some nice spots there. We’ve been pretty disappointed in some of these yields. Yes, there’s some fields that are really good, but we’re starting to get the choppers out there and, you know, hearing some of that disappointment as we get out there. So, hey, the funds got behind it. They liked that story. Got some carrying some very big lengths. So we’ve got some uptrends. You know, it’s been warranted in the corn and the soybeans as well.”
He says farmers are selling against the rally as it is presenting some profitable levels they didn’t think they would see.
“We’re seeing some of this basis start to improve so so the demand side hey that’s feeling good on old crop the basis on beans is getting impressive. And as you start to look down south, those guys are starting to talk about that corn basis starting to really improve. So really some things to like about it,” he says.
So he doesn’t think the funds are done pushing the market higher in corn or soybeans and so $13 bean are a target he is expecting to be hit as well.
