Ag markets were lower on Monday, except for cattle futures.
Cattle Extend Gains on Strong Technicals
Cattle futures were higher early Monday after posting higher weekly closes in both live and feeder cattle futures last week.
Joe Kooima with Kooima Kooima Varilek says the charts are looking more friendly after last week and it started with Monday’s gap higher opening in reaction to the record low placement figure in the USDA Cattle on Feed Report.
“We held that gap for three days. It’s kind of a rule that we have when you leave a big gap like that you hold it for three days we can kind of measure off of it.”
The feeders also have an inverted head and shoulders pattern which is projecting a low has been forged.
“So our low that we put in prior to that on-feed report matches a low from a couple weeks ago. And so, and it projected off of that. So we can take this neckline out, which is like last week’s highs, maybe a little bit more upside is left,” he says.
If fact it could project $8 to $12 higher on the feeders while live cattle are finishing off the third leg of an Elliott wave pattern.
“That C leg will sometimes take out the previous couple highs.”
Cash Trade Quiet, Mostly Steady
Cash trade was light last week with packers holding leverage and currently the market is two-tiered.
Northern deals ranged from $219 to $223 live and $345 to $350 dressed but prices weakened throughout the week. While, Southern deals didn’t take place until late Friday into Saturday at $226, which is steady, instances of $1 higher than last week.
“So $226 again last week, fully steady can be disappointing to some. But then when you look at the northern cash where we started at $220 and we went down to $219. So we’re $3, $4 weaker than the week prior,” he explains.
While Kooima says the south holding out for better prices is encouraging, it’s historically not a bullish environment when the south leads because it often means the north needs to get current and producers do not have leverage.
Slaughter Only 484,000
Cattle slaughter last week was also record low last week at only 484,000 head due to the ICE raids in southwest Kansas that spooked workers and resulted in plants canceling some shifts.
“This isn’t the first time where we’ve had the presence of ICE in a community that’s got a kill plant. And typically it’s more of a gentleman’s agreement between the two officials that they’re just inquiring of certain people but since it’s such a tight-knit community that work at these places it doesn’t take much for that spread or that fear to spread a little bit then the workers just don’t show up,” he says.
Kooima though Saturday kill would make up for the loss but that did not happen and there is concern about the impact it will have on the cash market moving forward.
“It’s something we don’t want to see in the north or we’ll hear more cattle getting wheels underneath them and shipping them south just to get them dead too,” he adds.
Boxed Beef Bump Tempered By Imports
The lighter slaughter did bump boxed beef prices up but Kooima says with slaughter down 45,000 head from the previous week the price response should have been better.
“It was maybe a little bit disappointing that we couldn’t put more on it, given it was such a record low kill there. So that kind of tells you this demand aspect. All the beef coming in from overseas is certainly, it’s present in the marketplace and it’s going to be a while until we can kind of shake that off,” he adds.
There were stories last week the Trump administration was considering reversing their action to bring in 300,000 metric tons of beef imports tariff free over 90 days to lower beef prices and that popped the market mid-week. However, the administration denied it.
Feeder Cattle Eye Cash
Feeder cattle futures were getting some help from lower corn prices on Monday.
The cash market helped to support the higher week last week in the feeder futures and while the index was up nearly $4 for the week, it may have leveled off for now according to Kooima.
“Some of the northern barns last week were just absolutely crazy. So I would look for some leadership from the feeders yet. I kind of like that chart a little bit more than live cattle right now.”
Hogs Fade Report
Lean hog futures were down on Friday and were mostly lower again on Monday.
This action has been disappointing considering the USDA Hogs and Pigs Report was bullish and showed lower inventory of 1.5% compared to a year ago.
However, Kooima says the fundamentals don’t match up with the reports and so the market doesn’t believe the numbers.
“When I saw the numbers come out I though we are going to see, 1% to 2% breakdown or lower on all the classes on the weights. And I’m just like, I don’t know if that quite jives with the kill numbers. Hearing that isoweans are the lowest that they’ve been in a while, high $20s. So the market quickly snuffed that out,” he says.
Plus, he says demand has been sluggish domestically and slaughter numbers even last week were up 68,000 head from the previous week and 49,000 higher than a year ago.
“The current fundamental aspect just did not reflect any of those numbers that were shown and these funds are net short and that wasn’t even enough for them to think about getting out of some of their shorts that they have.”
Grains Fall on China Disappointment
Grains markets were sharply lower on Monday with soybeans leading the losses.
News over the weekend on the China summit indicated Beijing was lowering its 10% reciprocal tariffs on ag good, except for soybeans.
Additionally China is working on the pro-rated $17 billion of additional ag goods to be bought by Dec. 31 but gave no specifics on the commodities or timing.
Kooima says the meeting hype overstated the actually deliverables and there is concern with the funds record long in the soybean complex they could pressure the market and take profits end of month and quarter.
“We put so much emphasis on that it’s just going to be so good. I mean even Trump said that that can’t wait until the the farmers hear what we have done because it’s going to be great. You look at today’s numbers you’re just like oh I’m so disappointed I’m so sick of all these headlines about over promising,” he says.
With China not lowering the 10% tariffs there is concern that China can’t get to the full 25 MMT of soybean purchases because it will not be economical for private crushers to buy U.S. soybeans.
The lack of details and certainty are also pressuring the market. “The administration just has that problem giving all the details. I don’t know how many times that we have to kind of be fooled by that, but this is another time where it over-promised and then we just never get the list,” he says.
