Cattle and grain markets were mostly higher early Monday with hogs lower.
Cattle Futures Extend Gains
Cattle futures extended gains early Monday from higher weekly closes last week. The October live cattle were up over $6.72, with October feeder cattle up $12.35 for the week.
Joe Kooima of Kooima Kooima Varilek says the strong technicals were part of the story but higher cash was also supportive.
Cash Feeder Market Sharply Higher
The cash feeder market led the gains last week with the cash index on Monday up $10.42 and climbing to $341.64.
“The cash feeders just absolutely ripped and exploded higher in the last week and a half and the old saying the feeders are the leaders that’s certainly going to take charge here today. With the index up over $10 and moving back in line with the spot month,” he explains.
Fed Cash Also Strong End of Week
The fed cash market also strengthened on Friday with the North from $223 to $225, up $3 to $5 from last week and dressed prices at mostly $350, up $5 to $6.
Southern trade was from $223 to $226 but mostly $225, up $3. Kooima says the $226 cash happened late on Saturday.
“So you know this is the first time and even going back to the week prior we actually had a firming cash market from midweek to the end of the week and we improved the market last week by a few dollars. We’ll take these little base hits because it’s the first time that we’ve finally caught the cash market in the last I don’t know what two months two,” he explains.
He says the fact the highest cash happened over the weekend is a good indication this week could see higher money again.
But good job to the producers out there digging your heels in just a little bit,” he says.
Will the Funds Come Back to Buy Cattle?
With the strong futures performance Kooima says he is encouraged the market is trying to bottom as futures got above key moving averages. However, this has been a rounded bottom, which is unusual for cattle.
“It looks like we finally can say we put in a bottom a few weeks ago. I am maybe a little bit hesitant on saying that we put in a bottom because it’s not the fashion that cattle bottom. Usually it’s very violent whether you’re talking about the top or the bottom,” he says.
The key that is missing is open interest actually went down all of last week. Meanwhile the funds are long live cattle around 47,000 contracts.
“So that tells me that there’s just some short covering that took place because we did some good technical work above moving averages and whatnot. Cash came along with it. I’d feel a little bit more comfortable if that open interest actually increased on those big up days because that would tell me your long speculator is coming back into the marketplace and maybe a little sense of the funds if they want to come back in there too,” he adds.
Kooima thinks the market will need to hold on to these big gains to encourage the speculator to come back in. Nearly all of the bearish news is priced in but fewer headlines out of Washington D.C. would help.
“And as long as we can kind of keep some of that noise out of Washington away too, I think they’ll eventually come back in. But I don’t want to hold my breath too much right now,” he says.
Inflation, Higher Interest Rates
The fly in the ointment is the stock market has been nervous about inflation talk tied to higher energy prices and the FOMC could raise interest rates a quarter point at their meeting this week.
He says, “Historically, that has had a severe impact and that’s kind of why maybe your long speculator didn’t step in to the big rally the last two weeks, because they’re just afraid of the uncertainty of the unknown. An inflationary type of a move is more friendly on your grain side. The other stuff is going to kind of catch a little bad wind with it,” he says.
Plus, higher gas and diesel prices also mean less disposable cash for consumers to buy beef.
“This is historically is not what you want for a sustainable rally by any means.”
Boxed Beef Falls With Higher Slaughter
Packer margins are finally positive again and so the packers have been starting to ramp up the slaughter pace. The negative of that is boxed beef cutout values may have a tough time holding.
Kooima says, “That’s typically what happens but packers almost immediately added a Saturday kill and also our weekly kills are the
biggest since like May. So that is a little bit of a concern.”
He says the market will need to determine where the consumer demand is and how far prices can rise before there is push back.
“There’s obviously still decent demand out there but it’s not near as great as what it was back in the first and second quarter. So it can get turbulent here just trying to figure out how much lower do wholesale or retail outlets need to move prices to get movement,” he adds.
Hogs Fall with Cash and Cutouts
Lean hog futures were lower on Monday with cutouts down over $2.00 coming into the session and cash trade also falling. The National Direct Market hog was down $1.48 on Friday and the Lean Hog Index was down $.85 at $87.94.
Kooima says, “We just can’t move the needle when it comes to cash and cutout, it’s been dragging lower here recently. We had a nice seasonal rally a few weeks ago that that propelled the market up $4 in two quick days but these funds are short they’re just kind of staying with the program there there’s nothing for them to really jump out of their shorts here right now.”
Weights finally dropped below a year ago last week and if that continues that could help support the market.
“But looking at the calendar you get one last little hurrah here, then that fourth quarter can just be a little bit tough. And the signs of demand, exports are okay to Mexico, but I’m afraid our domestic demand is just in the backseat right now. We just can’t catch a gear with that at all right now,” he says.
Plus the futures discount to the index is not attracting the funds to buy as the index is starting to fall to meet the futures.
Grains Bounce After Bearish Key Reversal in Soybeans
Grains were trying to bounce on Monday after the selloff on Friday and a bearish key reversal in the soybeans.
Kooima says the grain market is trying to consolidate after a slightly bearish yield increase in soybeans from USDA by .1 bu. and the corn yield cut of 2.2 bu. per acre was as expected.
The grain market had a big inflationary rally on Thursday pushing November soybeans to new contract highs, then gave it all back with some profit taking going into the weekend.
“So the market has some healing to do but let’s not forget everything else that has propped up prices. You’ve got the wild card with Russia Ukraine, you’ve got inflationary type talk as well. And we still have issues in the Middle East with crude oil well over $100. So those components are still there,” he explains.
He says the market is picking up the pieces from Friday yet and that might take a few days especially with the funds still near to record long in corn and soybeans.
“It’s still prevalent that I think can push these prices higher, but we just might have to take a little bit of a sideways jolt here, get us out of this overbought status for a little bit, and let’s look for that third leg higher to happen,” he concludes.
