Cattle and hogs were higher early Monday with the grain markets sharply lower led by soybeans.
Cattle Fade JBS Plant Strike
Live and feeder cattle futures opened higher on Monday morning, fading the JBS plant strike in Greeley, CO.
Brad Kooima with Kooima Kooima Varilek says there were a couple of reasons the market ignored the strike and the biggest was the higher equity markets and lower crude oil. However, it was also tied to the fact the strike news was already priced into the market.
Kooima says Greeley was already dark last week. “There seems to be some confusion about what went on last week but you know the week before Friday in the afternoon the the union voted to strike or to walk out in 7 days. When they gave management their decision the manager said don’t bother coming next week. So last week we didn’t kill cattle at Greeley because of that. Now this week we’re on strike.”
He says interestingly enough the headline following algorithms that might be selling on the plant strike saw an offset from the outside markets like the equities.
How Long Will the Strike Last?
Kooima says the key to how long the market can continue to hold up depends on how long the strike lasts.
“I don’t know how long the strike’s going to last. But, I mean, it’s not going to last forever. I don’t think this is 1979 where that place went on strike for a year, if anybody doesn’t remember that. 79 into 80, a year at Greeley. I do think that this will be sooner rather than later. “
In the meantime he says JBS has been largely out of the cash market for several weeks.
“So if they would settle and need to try to buy some cattle, I would think you’d get a lift on the front end of the cattle futures and probably improve the cash market as well. So I don’t know if that’s this week, next week, or if it takes a little longer than that. To me, it’s a matter of how many weeks do we think it’s going to last,” he explains.
Could President Trump Step In?
There has also been speculation that a strike would not last long because President Trump might order the employees to go back to work.
Kooima says, “That’s news to me. You know, President Trump is unpredictable. How’s that for a polite answer? I think he’s got plenty of other things to worry about right now than that, although we all know he thinks beef’s too high, although he has put that comment in the closet, thankfully, here the last while.”
Less Negative Impact Because of Tight Cattle Numbers?
The impact of the Greeley plant being dark and removing the ability to kill the 5,400 head a day the plant slaughter may also be muted because of the tight numbers in the current cattle cycle and excess slaughter capacity says Kooima.
“If we were running along killing 125,000 a day, for instance, I think it would have been a lot more devastating. As it is, there’s still, like you just said, there’s not enough cattle to fill what we’ve got. And so I’m not alone thinking that there’s a chance that another plant will go down before this cycle’s over with yet,” he adds.
Can Cattle Recover?
Cattle futures were higher to start Monday and the April contract had filled an important gap area. However, the market was stopped at the first layer of chart resistance. So can the futures fully recover especially with the stock market on weak footing due to the Iran war?
Kooima says there are many headwinds right now in the market including the fact the packer has regained leverage. That’s why cash was $5 lower last week at $235.
“Cash was five lower last week, and we didn’t hardly sell any cattle. Feedlots showed quite a bit of resistance to the lower bids. So now we’re going to heighten that negotiation here this week because we’ve got carryover cattle and some of these cattle are big. So we’ll see who blinks first,” he says.
The other key will be what the stock market does from here and whether futures can regain enough strength to get fund or speculative traders to re-enter the market.
Lean Hogs Bounce With Cattle
Lean hog futures were also higher early Monday with help from cattle and a more risk on tone in the equity markets.
However, Kooima admits the resiliency in the cash and cutouts have also been supportive for the market, plus the tighter numbers expected ahead due to disease.
Grains Tank on Fear of China Meeting Cancellation
After a gap lower on Sunday night the grain markets were sharply lower on Monday. Soybeans were down over 50 cents early on fear that President Trump was going to cancel his meeting with President Xi in China at the end of the month, striking down chances for additional soybean purchases.
Trump asked China over the weekend to help get the Strait of Hormuz opened to allow crude oil to be shipped and threatened if they did not agree he would cancel the summit with the two leaders.
Kooima says the soybean market is taking out premium on that fear and that is spilling over to drag down the grains. However, the lower crude oil market is also taking some of the air out of the grain market balloon.
