Cattle futures were lower early Friday, with hogs mixed and grains higher pre-WASDE.
Cattle See Melt Down With Lower Cash
The cattle futures ended lower on Thursday seeing pressure from fund selling and lower cash.
Early Friday futures tried to stage an early recovery but it was short lived as funds have been selling every rally.
Scott Varilek of Kooima Kooima Varilek says cash developed Thursday at $248 in the South, down $7 from last week and that was the story in the North as well with $248 live sale prices and dressed volume at $393, down $10 from last week.
“You know got up to $248 which we thought maybe we could get $250 to $252 and it just was not happening. So then you start triggering some at $248 and then get quite a few packers that say we’re full we got enough bought and start shutting off. And maybe you have one packer left this morning that I’ve heard with $248.”
Producers Lose Leverage
Varilek says that made feedlots nervous because the leverage with the packer is so important.
“With what we’ve been able to do the last couple of years, it’s so impressive with how much leverage we’ve had. And now there’s just reasons that we’re kind of losing it. I mean, now this is a little bit of a hangover effect. We’ve got Lexington gone. We’ve got Fort Morgan closed. We’re trying to sell cattle in the north and it’s getting a little bit sloppy. Our demand is a little bit softer here this time of year. So what they can do with that leverage, we’re all a little bit scared of it.”
Futures at Discount to Cash
With the August live cattle futures at a nearly $20 discount to cash that may have also prompted some lower cash sales.
“So it’s a little bit enticing when you’re in the mid $230s on an August contract and you’re still getting $248. That’s an excellent basis for this time of year. I mean, that that’s wow. kind of kind of trade so that’s making us easier to sell that’s another reason why this cash market can really start to drift lower,” he says.
His fear is the cash could be lower again next week as well which will start a bigger correction and could spill over into the cash feeder market.
“You know we’re seeing some huge prices on cash feeders that’s been the leader of this market but as high as some of those prices are you know I’m fearful that we could see you know feed yards just start sitting on their hands and saying hey I think it’s time we could break those feeders you know big dollars pretty fast.”
How Much Lower Will Futures Fall?
The cattle futures charts are beat up.
Live cattle futures have been trading below the 100-day moving averages for several days now but nearby feeders also closed below that key support area on Thursday.
How much technical damage has been done to the charts and and how much lower could futures fall?
Varilek says, “There’s not just a technical spot I’m looking at right here that says this is the number we got to hold. So we got below some of those halfway retracement and moving averages. There’s some room below us before we get some major support here, so that that’s kind of the scary part you zoom out and look at a long-term chart and you see that six years of a nice uptrend we’re still well above those those uptrend lines.”
So, he says that could leave room for a bigger correction if the funds decide to liquidate more of their length.
Are the Highs in?
The long term uptrend lines are still intact though on the charts, which is at least somewhat encouraging.
“You draw those lines and you can break this thing another $20, $30. And then we’re starting to test some of those major long-term trends there. So there’s room for plenty of volatility right here in the middle here.”
However, he admits he thinks the highs may be in.
“I’m going to say if you held a gun to my head and made me say it, I’d say yes. I think we’ve done it. I think that our highs are behind us.
It all depends. Are we going to get this cow herd growing? But we’re going to need to see some changes. I mean, with two plants closed and those numbers tight, you know, if we start to find some more numbers that could be it,”
He thinks there have been quite a few heifers bred this year in an effort to rebuild the herd.
“So high prices, cure high prices. And we’re going to do just that. I mean, there’s hopes that, hey, we could get a big charge higher. But if this live cattle market really rolls over, those cash feeders aren’t going to be able to do it by themselves here.”
Rollins Asks Retailer to Cut Beef Prices
USDA Secretary Brooke Rollins also asked major retail chains like Walmart, Albertson’s and Kroger, to lower beef prices.
Varilek says he hates government intervention and the administration’s push to control or dictate prices.
“The market’s going to fix itself. If these beef prices stay high, we’re going to raise more beef. It’ll eventually get there. We can’t turn this cow herd around as fast as the hog market does. So I think the long term, we’ll get it fixed. But the fact that they actually did lower some prices. I guess that’s going to probably help move some beef. Instead of buying a pound of hamburger, you might buy three because it’s on sale every time something’s on sale. It actually might boost demand just a little bit here,” he adds.
