Cattle were trying to bounce early Monday. Hogs, corn and soybeans were higher, wheat lower.
Is the Bleeding Over in Cattle?
Live and feeder cattle futures opened lower on Monday and then saw a decent bounce and it is overdue as the market is oversold.
Joe Kooima, Kooima Kooima Varilek says the question is whether or not the strength will hold or if funds will use it to exit more of their long positions.
Live cattle futures have been down a record 15 days and August is down $25. So, it the bounce doesn’t hold today where is the technical support going to be found on the charts?
Kooima says after a gap on the charts, if the gap isn’t filled within three days you can measure lower off that gap to find a support area. There are a few numbers
“It looks like October, December, February that gap extension should be like $218 and change, I mean, it doesn’t have to be exact. I mean, I would take $219 for crying out loud at this point. And the feeders probably a little bit more. They’d be more like $320 as September didn’t have that gap, but some of the deferreds, like October, did gap last week.”
Funds Liquidating
To get the market to stop going down Kooima says the funds will need to stop liquidating and right now they are selling on every bounce.
The Commitment of Traders Report showed the managed money was still long 98,000 contracts in live cattle and around 10,000 in the feeder futures.
However, with the continued selloff through the end of the week, Kooima thinks the length is much less, especially with the big volume days.
Cash Crashes Last Week
The other pressuring feature of the market has been the sharp drop in the cash trade, both fed and feeders.
Kooima says the fed trade was $15 plus dollars lower last week with the volume at $238 but by Friday trading as low as $230 live.
“That could be our roughest week that we probably ever had in the cattle market. And I didn’t look back at COVID or 2015, but this would be at those levels, basically.”
Producers have lost their leverage, packers have gained it using formula cattle and the heat has also worked in their favor.
Can Cash Stabilize?
Kooima isn’t confident the cash market can stabilize until the boxed beef values do and those were down nearly $16 last week on the Choice and $13 on the Select.
Feeders also need to find some footing in the cash market as Southern barns were $15 to $20 lower last week.
He reminds producers that even though cattle numbers are tight there has been considerable packer capacity lost.
“We’re still killing 8% to 10% less than a year ago every week but when you balance that number out with the shackle spaces lost we actually have too many cattle,” he explains.
He says 12,000 to 13,000 head of shackle space has been lost with the closing of plants in Lexington, NE, Sauderton, PA and with Fort Morgan, CO, still dark due to the strike.
“We’re killing 8 000 less than a year ago or 10 000, so we’re behind the eight ball unfortunately,” he adds.
Right now the packers are also using the heat as leverage but Kooima says that will eventually take weight off of cattle that can help stabilize the market.
Futures Discount Narrowed
The futures discount to the cash has narrowed quickly, but it has been the free fall in the cash market that has narrowed that gap.
“We were looking at August feeders, for example $20 below the index last week at the beginning of the week. It’s like, come on, we can’t be this far away with six weeks left to go. But then you get it this morning where today’s index is down $5. So now you’re just like $12. discount to it there. So that’s a fast moving structure of the marketplace as well.”
Hog Recovery Continues
Meanwhile, the hog market has been staging a recovery with funds covering shorts and some unwinding of cattle/hog spreads.
He says, “I think the first thing that happened was actually a couple weeks ago when the technicals on the hog charts looked a little bit better and I think that was a big push and I think you had some commercial buying back there when that was happening too because these commercials know that these funds are record short,” he says.
However, Kooima says it is also attributed to cash and cutouts holding over the $100 market for the first time since April.
so all they need to do is just a little bit of a push but i was telling
“Now we’re seeing that index number starting to shoot up. Just a little bit, too, because we’re finally seeing these higher prints in the cutout. So I think you’re seeing a little bit better demand. You’ve got the packers showing a little bit of money, too, with the cash at $100.
Slaughter numbers have also started to come down and last week were off 1.5% compared to a year ago, while the heat is trimming weights.
Row Crops Rally, Soybeans Make Fresh Highs
Corn and soybean futures gapped higher on Sunday night and the November soybeans made new highs for the move. Closing in on the contract high in December of 2022.
Funds are buying after higher weekly closes last week. However, the big push is coming from the extended weather forecast looking hotter and drier as soybeans move into their critical reproductive stage. Western Europe is also expecting the heat and drought to continue.
Kooima says there are other bullish factors as well including fresh demand with China buying 9.7 million bu. on the flash sales report and another 4.0 mb to unknown destinations, both new crop. Columbia also bought 3.9 million bu. of new crop corn.
Secretary of State Marco Rubio has also confirmed Chinese President Xi is set to visit the U.S. in September.
Finally he says the wars escalating in the Middle East and the Black Sea are also showing no signs of backing off.
“With the Danube river, the main artery of that river is not bringing a whole lot of grain down. Russia and Ukraine are blowing ships up and grain containers,” he says.
Just like cattle if corn and soybeans can see the gap up from Sunday night hold for three days the market can measure higher off those points.
“You get corn potentially with another 40, 50 cents from here, if we can hold that gap. And then beans, it looks like another 60 or 70 cents on that,” he says.
