Cattle futures were mostly higher early Wednesday with hogs lower and grains making new lows across the complex.
Cattle See Chart Breakout
Cattle futures opened higher making new highs for the move and pushing to levels not seen in three months.
Brad Kooima with Kooima Kooima Varilek says the charts look positive after Tuesday’s break out above the August and September highs. Even the Dec live cattle filled the gap area at $230.17 and closed above that level.
How much farther does this market go now that it has gotten above these technical resistance areas?
Kooima thinks the market might be due for a healthy correction.
“It feels to me like we’re kind of, I’m not bearish, but it feels to me like we could very easily be due for a little pause for the cause, as I like to say. You know, we like to watch stochastics on the cattle. We are very, very, very overbought, overdue for correction,” he says.
While he isn’t rooting for a pullback he says the October live cattle contract, at $229.50, is ahead of last week’s cash at $223;.
Cash This Week?
He hopes cash cattle trade can get to $225 in the north this week but it needs to be to justify the premiums in the futures.
Kooima says the fundamentals feel better in the north as producers work through the bigger cattle on the showlists.
“One of the major big four it was up here with aggression last week buying cattle to go south and some cattle going as far south as Texas here that were bought last week. I happen to know because I’ve got some of my own going that direction. So, that’s a long haul, that’s good though that tells you you know that the supply of cattle at least of fat cattle in the south is extremely tight. So they’re exporting some of the cattle out of here.”
Cash trade is expected to be higher this week with calls in the south for $230 and the north to $225.
“We seem to continue to lag, probably because of the regional imbalance in supply, if you want to call it that. But I think there’s a shot at a couple bucks higher here, both north and south,” he adds.
Cattle on Feed Adds to Bullish Tone
The USDA Cattle on Feed Report is also due out on Friday and expectations are for placements to be down over 8%, the third month of near to record lows.
Kooima says that is also giving the market a push, along with fund buying.
“That’s a bullish guess on the report. That’s for sure. And I wonder, you know, with the border open a trickle, whether that hasn’t affected our neighbors to the south there in Texas. I don’t know. I hope we can meet those numbers. They’re bullishly guessed. But I guess the last few reports have been helpful, so I’ll go with it. But if I was a betting guy, I would probably take the over on the placement number if we were to
bet it.”
USDA to Release Regional Cash Report
USDA also announced on Tuesday they will be releasing a new cash cattle report on October 26 under the Livestock Mandatory Reporting (LMR) in accordance with the recent presidential executive orders.
With the lack of negotiated cattle reported in the southern states the confidentiality rule has kicked in for the last month in Kansas, the last two months in Texas and for years in Colorado. To improve transparency the agency is going to provide a new regional report including sales from Texas, Colorado, New Mexico, Kansas and Oklahoma.
So will that help improve transparency? Kooima says it will provide some additional numbers to generate a report but he is skeptical about whether it will help or hurt the market.
“I’m not sure that it’s an automatic that this is such a helpful thing,” he remarks.
Will it Help or Hurt?
He has long supported more transparency through negotiated cash sales but says price discovery and price transparency are two different things.
“Let’s be realistic. People don’t know what the cash cattle are bringing? Give me a break. If you don’t know what cash cattle are worth in your state, then I’m sorry, you better work a little harder. Maybe there’s a, I mean, the ridiculousness, that idea that you don’t know what cash cattle are worth is, is, is unbelievable.”
He thinks this idea is too little too late and there could be some unintended consequences.
“How these guys run their formulas the formulas have to be based off a price so wow we don’t have a cash price because we fail for confidentiality now? he says sarcastically.
So he doesn’t think it will improve anything. “In fact, it’ll just make it easier for those guys to price their formulas. And we don’t need any more formulas. We need more price discovery. So that’s how I feel about it. It’s like a big deal. And if you don’t know, you should know. And all we’re doing is helping the formula guys,” he adds.
Why Did USDA Just Eliminate the Confidentiality Rule?
USDA could have accomplish more by eliminating the confidentiality rule.
“We would have gotten everything else done that they’re trying to do here instead of regionalizing this thing into a bigger deal,” he explains.
He says the rule is obsolete as it was developed when the industry was much different. Now it’s evolved and it’s time for the USDA to catch up to the way the market works.
Third Port to Open
USDA also announced on Tuesday the third port on the southern border will be opening to Mexican feeder cattle on Oct. 26 at Columbus, New Mexico and the next is Nogales, Ariz. on Nov. 30 if conditions were met.
The market handled the news well considering the first opening and even the fear of the border reopening was met with considerable selling pressure.
Kooima says, “It feels like it’s all systems go. They even had a little hiccup there with with one of the ports having some health issues on their cattle but it seems like the commitment has been made to get these things open and keep them open.”
He says the increased numbers from Mexico are currently being absorbed but that will change later on with the closure of packing plants in Lexington, Neb., Souderton, PA, and Joslin, Illinois.
“It’s not gonna the border doesn’t affect the the fed cattle supply here for quite a while because they’re not they’re not importing 1500 pound cattle that will change down the road,” he adds.
Hogs See Pressure
Lean hog futures were lower again Wednesday after a slight short covering bounce in nearby contracts yesterday.
Kooima says the cash and cutouts have still not bottomed allowing the futures to carve out a low.
“The market just continues to struggle. I don’t know somewhere in here you would think one would catch but you’ve got to have perfect demand especially if you’re going to kill this many hogs.”
Kooma says the industry needs to do something to spark domestic or export demand.
“Should be a little life, maybe for Thanksgiving. Some people don’t eat turkeys, they eat a ham, but it’s hard work here. I don’t know what to do. I’d like to give the guys something to hang their hat on. We’re oversold.
We’re cheaper. December hogs are a fourth of the price of December cattle. I mean, this is unheard of stuff.”
Grains Make New Lows
Grain futures were making new lows for the move again on Wednesday morning with a a sharp slide in wheat.
Fund selling, harvest pressure and possible movement on a cease fire or peace deal in the Black Sea were combining to pressure the market.
The question is, where does the market bottom?
Kooima says, “I just can’t see why corn has to be cheaper than $4.60. I’m sorry. You know, we penetrated those August lows here today. Now we are just a little bit back above them. You know, we got kicked out from underneath us by the USDA on that report. Now, like you just described, 20 lower wheat because of the potential there. I hope that peace does break out. We’ve been disappointed with that before.”
While the market is extremely oversold, he says its a tough time of year seasonally for the market to bottom especially with the fast harvest. While he doesn’t think the basis is reflecting the increased yield from USDA in the report he hopes that is mostly worked into the price.
