Cattle were lower early Friday, with hogs and grains higher.
Can Cattle Remain Resilient?
Cattle futures were lower on Friday morning in tandem with the lower stock market. Scott Varilek with Kooima Kooima Varilek says the uncertainty of the war in Iran has caused some reallocation of money this week. It has been coming out of markets like the metals, plus the DOW and S&P and going into especially crude oil which has seen a $20 rally this week.
Varilek says the correction in the stock market has broke the cattle futures several times but the market continues to claw its way back and close above key support on the charts. Can that continue? Varilek says, “So cattle market has been resilient. That is absolutely the word to use this last week because I think there was plenty of stories and uncertainty folding around in that market. However, there was somebody really protecting that market and there was plenty of rumors around who is doing this who is there a packer that short bought cattle? You know we don’t get to know that but it kept fighting its way back and now today getting this break. And I think this is finally, hey, we’re looking at a stock market that’s continuing to correct. The war is the front of the storylines all day here. And it just doesn’t look like that’s going to end real quick. I think that there’s just more that’s got to happen yet. It’s not going to be the we’re in and out. We got this job done. Good job, boys. Bring them home. Now it’s extending just more uncertainty and scared.”
Higher Gas Prices Hurt Beef Demand?
With crude oil up $20 in a week that is being seen at the gas pump by consumers. So is there fear about demand backing off for beef? He says, “Demand was such a slam dunk. Hey we’re gonna have such a great spring no problem everybody’s gonna grill, stock markets at record highs and now this just throws that little wrinkle in there. With energy prices surging you know you you can hear a few stories here and there well people are starting to line up the gas pump a little bit making sure they’re filled up and we get into bunker mode when some of this happens.” So it’s putting a question market around demand.
Plant Strike Uncertainty
At the same time is there still concern about whether or not the JSB plant in Greeley, CO, is going to strike? Varilek says they are supposed to vote today but the outcome is unclear. “I think everybody wishes we knew more about what’s happening with the Greeley plant. But yeah, the news, you get rumors that circulate around in this market and it’s fought it off. Great. But latest is that they’re meeting today, this afternoon, possibly.” He says it would be positive for the market if it gets resolved and would hopefully help bolster chain speed and cash trade.
“We might get some cash boost in the market as they might need to buy some cattle again. I mean that was kind of the rumor why the market was running a little bit because hey there’s some people that need some cattle. So, i think that would help us out and we would love to just get that story behind us because there’s so many other you know things that we got to focus on right now,” he says.
Who Has Leverage?
In the meantime, the packers have been throwing out low cash bids at $235 he says, to try to break the psychology of the market. So who wins out or blinks first?
Varilek says, “You know, this cash market isn’t, you know, feeling as good as it was. So we’ve got producers that are making cattle big. It’s paying us to do it as the feeders are high the feed has been cheap so I will just make them bigger. I think we’re finally getting to the point we saw some very light kills here as of recent and now the packer’s getting a little bit more leverage. We got the low ball $235 bids and then there was a few you know yards that were trying to get $240 yesterday could not
get it so we’ll kind of see who blinks first.”
However, he thinks the packers may have the leverage until the weights get cleaned up. “And that’s what needs to happen. So not feeling as great about our cash market here going into this week. And you hope some of it happens. Some of these guys get it cleaned up because if we don’t. get a big cash trade then there’s going to be more big ones next week on the show lists,” he adds.
Chart Support Needs to Hold
So far this week the 100-day moving average has held on the charts and so today the close will be critical. “This last break that we had, you know, last week, we’ve got some lows down there that are going to be pretty key support. You know, it could be a pretty important line below those 100-day moving averages. So you’re looking at, you know, $228.50 on the April,” according to Varilek.
Hogs See More Profit Taking?
Lean hog futures were lower on Thursday on profit taking but he says there is not much new to push the hogs lower. “I’m just a broken record. I think the disease stories are still out there. You get some horrifying news out of a place and it circulates around the market. So we hear about it. And I think that’s still the main thing, the tighter supply. I think the funds can still hold pretty good. If we start seeing some broken up trend lines, then it could happen to get a little bit worse, but I don’t see that happening for a while yet. I’m still feeling confident in some upside on the hogs.”
Grains Rally With Crude Oil
Grains are also up Friday morning with new highs for the move in both corn and soybeans. The buying by funds is an inflation play as crude oil makes new highs. “Yes, that is what is pushing these markets up. And it’s going to be a nice shot in the arm here. We’ve already got farmers starting to look at this and say, hey, I didn’t know this opportunity was coming. I thought maybe it would be weather or something but this is maybe something that the grains needed just to give us some opportunities to to do something,” he explains.
However, he doesn’t want to pull the trigger to quickly but says farmers need to start pricing some grain to help their balance sheets. “We’ll be watching the energy markets and the outside markets close.”
How High Could Grains Go?
However, if crude oil keeps rising to $100, how high could grains go as a follower? He says corn may have a shot at getting above $5 and the market is already above $12 on beans but says it is anyone’s guess.
But with money coming out of the equities it is finding a home in the grain markets. “It is good to have them on your side at least when they’re when they’re on the pushing it the way you want it and those charts are starting to look like somewhere if a fund was looking at it at some generally low historical prices say and we’ve got an uptrend happening that could be an easy place for them to try to go,” he adds.
