Cattle and hog futures were higher early Tuesday with wheat rallying and corn and soybeans trying to follow.
Cattle Bounce Early
Cattle futures were higher early Tuesday seeing a technical bounce after a lower close on Friday but higher weekly closes were posted in both live and feeder cattle futures for the first time in over a month.
Presidential Executive Orders
Friday’s selloff in cattle may have been tied to fear of the Presidential Executive Orders that were announced after the market closed.
So is the market trading that action at all on Tuesday?
Brad Kooima with Kooima Kooima Varilek says the orders do not provide any immediate impact to the market and were designed to politically appease cattle producers ahead of the November mid-term elections.
“I didn’t think there was much significance in any of the announcements other than trying to maybe appease to every single farm group, cattle group, especially the cattle groups that have expressed extreme disappointment with this 300,000 metric ton deal,” he says.
Kooima took some flack after his comments about the plan but says he is just trying to figure out what it means for the market.
“Hey, if you love this policy, go for it. If MCOOL is your hill to die on, good for you. I think it’d be fine too, but it’s not my hill to die on. I’m just trying to figure out whether it’s going to make the market go up or down,” he explains.
MCOOL No Market Impact
He says in the short term MCOOL won’t have a market impact.
“People can argue that but you know the studies I see yes it’s important to consumers but it’s not as important as price. So personally I’d love to know where my bananas and my beef come from but to say that that’s what’s wrong with the market right now is not accurate,” he says.
Market Trading Fundamentals
Kooima says the market is coming off all-time highs pushed by tight supplies.
“And now we’re now we’re mad at somebody because the market broke. Lets be realistic, folks. There’s a risk with feeding cattle. If that’s not your jam, then you probably shouldn’t be in the thing.”
Stricter Packers and Stockyards Act Enforcement
Kooima says there has been a push for tighter enforcement of the Packers and Stockyards Act since he’s been in the business but those efforts have fallen short.
He says effort to get more negotiated cattle have made a small difference but breaking up the packers may not.
“I understand where that psychology is from. I thought it would be better to make sure that they all negotiate for some cattle. Let’s make sure that we have transparency and price discovery with them. And, you know, enforcement of the P&S deal. Absolutely. I don’t think we even need new rules. We just need to enforce the ones that we have. So it’s not that I’m still don’t feel like I want to be an advocate for especially the small independent, small to medium cattle people. We just need a fair, we need a level playing field with the big corporates. So I would still advocate for that,” he adds.
Cash Improvement
One thing that is supportive of the cattle futures is the improvement cash trade saw through the end of the week.
Kooima says early to mid-week the North traded some $218 and by the end of the week finished with some $220 to a major.
The South was even better at $222 with a little bit of $223 all the way into Western Nebraska and Kansas and Texas.
“So a little, I was encouraged by that. And it makes me a little bit hopeful. I had worried that maybe we were going to slog around here through September and maybe have to wait all the way into October to feel like we’ve kind of cleaned up the backlog of this calf crop, which I don’t know that we’ve done a real bang up job of timely marketing,” he says.
However, he says there are break evens that are starting to show red ink. It’s not like 2016 but still a concern.
Watching Slaughter Levels
Kooima says he’s watching the slaughter levels because last week was only 526,000 head.
However, as packers ramp up kill with positive margins he is concerned the boxed beef values will be difficult to sustain, especially with some consumer price push back.
Fort Morgan Back Open
It will help that the Cargill plant in Fort Morgan, CO is back open and slaughtered 1,000 head on Thursday and Friday of last week.
Kooima says they won’t be back up to 4,000 head for another four to six weeks and there aren’t enough cattle to support full capacity of 4,700 head.
The other things I wanted to ask you about, Fort Morgan, they did actually slaughter some cattle
“Maybe by the middle of October, we can get them rolling rull again, which that’ll be good. That this regionalizing, regional imbalances that have been created by Fort Morgan, but even worse with Sauderton, Joslin and Lexington closed, because now you’ve got this area that did a lot of negotiating. I’m talking about Nebraska and Iowa, Illinois. Those are the ones that have this big void now for infrastructure. So, I mean,
it’s going to change things a little bit. Let’s hope we can get a little more negotiated trade here,” he explains.
Mexico Imports Back Up This Week
Last week only 100 head of cattle crossed at the Douglas, Ariz. port facility as the chute broke with cattle that were too heavy, up around 1,600 pounds, being inspected.
However, Kooima says they are back open today. “The first week was 700. Last week was supposed to be 900, even though we hardly got anything done. And now we’re supposed to be at 1,200 a week. I don’t know that we’ll get our 1,200 a day, but we’ll see. Then we’re another week away from the second port opening and then another month away from the third port opening.”
So he cautions that the border opening does not change the market in a big manner immediately, but it will longer term.
“You’re not going to get any tighter numbers than the period that we just went through, okay? That was the summer, spring and summer.
June is what I thought, the tightest numbers. Now, so do we have to be at $220? I’m not saying you have to, but I’m saying that the trend of the market is in a different spot than it was here. And you’ve got to be sensitive to that.”
Funds Watch Technicals in Cattle
The funds are only 48,000 contracts long in live cattle after liquidating nearly 78,000 contracts the last 10 weeks due to bearish headlines from Washington and uncertainty.
To get the funds back interested in the cattle market he thinks the futures need to get above $222 on the December contract.
“They are trend followers, and they’ll need a reason. I’m just going to ballpark and say maybe $222-ish on December cattle, which is $6 away, somewhere up in there. But that’s probably where you start to attract some of the fund buying anyway,” he says.
Hogs Bounce
Hogs were higher again on Tuesday after some late week profit taking. The market was also unable to close above the 40 and 50-day moving averages.
What will it take to get above those areas?
“That first rally failed right up against that that area that you’re talking about. A close above $74.80 would get me excited on December hogs,” he says.
The cash trade has lost ground and global and domestic demand is still stagnant but futures are at a discount. So if the futures can get above key resistance he thinks December could get back above $80 and trigger more short covering.
Grains Leaning Higher
Wheat futures were higher early Tuesday on the break down in peace talks in Russia over the weekend and fighting re-escalating in the Black Sea.
Corn and soybeans were slightly lower early Tuesday but then started to firm with wheat and higher crude oil according to Kooima.
Still he thinks corn and soybeans will have a difficult time moving much higher until the WASDE is out of the way on Friday as the market needs some confirmation of a smaller crop.
“I know I’m nervous about what USDA is going to come up with that is supportive enough to say we believe Pro Farmer was right last month,” he says.
He says the bull continues to need to be fed and it will take a much smaller yield than USDA provided in August to keep the bulls buying especially with funds record long in corn and near record long in soybeans.
Still for soybeans he thinks strong demand is supportive and a close above $13.20 could open the door for a leg higher to $13.65 to $13.80.
