Cattle were higher early Tuesday with hogs and grain markets mostly lower.
Cattle Initially Fade Bearish Cattle on Feed
Cattle futures were higher early Tuesday at least initially fading a bearish USDA Cattle on Feed report released before the holiday and lower weekly closes.
Joe Kooima with Kooima Kooima Varilek says it looked like the cattle futures had already anticipated the negative report data with the sell off late last week. The key for him was whether or not the funds used the strength to liquidate more longs.
“You take a look at the big dive that we had, especially Thursday, Friday, late in the week last week. You needed to see an on-feed report that was drastically bearish. And we got a bearish report, but I don’t know if it’s as drastic as what the market bought into last week,” he explains.
Cattle on Feed, Placements Above Last Year
Cattle on feed numbers were up 1.8% from a year ago at 11.584 million head with placements up 5.5%, which was above average trade guesses. Marketings were down 10%.
He says the higher placements were a function of comparing to tighter numbers last year when the border was partially closed to Mexican feeders, but also drought and wild fires forcing some feeders off pastures early.
The on feed numbers were also up, and are higher than in 2020 during COVID, as producers continue to feed to heavier weights so they are keeping those cattle on feed longer.
He says, “The choice select spread would kind of dictate that as well, that we’re getting a lot of time on it. We’re definitely seeing a lot of that. And not just like 18, 20 days. We’re talking up here with the weights where we have. I mean, you’re talking extra 40, 50, 60 days in some cases just to get that choice select spread is the way it is.”
Technical Damage, Lower Weekly Closes
Both live and feeder cattle futures posted lower weekly closes so funds were liquidating last week.
So Kooima says there was chart damage, “You got head and shoulder top look information and, you know, in Dec, Oct, and Feb live cattle.”
Will the Funds Return to Buy Cattle Futures?
So, with the report out of the way are the funds going to come back in and add to their longs again or not?
Kooima says he is hopeful this will slow the liquidation.
“We’ll see how today kind of closes. I’m not in the camp that it’s enough for it necessarily. We’re seeing Yankton a few dollars lower this morning as well compared to last week.”
Plus there are other bearish headlines the market is digesting.
“Trump is still mentioning getting beef priced down at some point with some legislative action. That’s not a good thing to have and it’s not like he’s you know talking about it every week but every once in a while he just kind of brushes upon it again so that to me is a little bit tough especially as a fund manager you’re looking at some of these weekly closes, you’re talking about expanded limits, is this enough for them just to take their ball and glove and and go home?” he explains.
He says bull markets need to continue to be fed and there may not be an encore, especially with the peak of demand starting to wane.
“What happens we get into these other dog days of summer what’s going to happen with that so you can kind of put me in that camp that this is maybe the peak of some of the prices that we’ve seen here last little while,” he adds.
Cash Market Top In?
Cash trade was at mostly $260 last week, with a few $261 trade and some booked for a few weeks out. Dressed prices were mostly $410 to $412, up $1 to down $1 from the previous week.
Futures are trading at a huge discount to the cash and these are still record levels but the realization may be taking hold that this could be the cash top for a while.
“Sometimes when you have the big basis push that we’ve had, finally back in that positive basis, which is good for marketers, that can sometimes be your last little push higher in the marketplace as well.”
Cargill Lockout
The other headline that spooked fund traders was the lockout at Cargill’s Fort Morgan, CO beef plant plant. The two sides are expected to resume talks tomorrow and those headlines could move the market.
Meanwhile, the Dodge City, KS plant has ratified their labor agreement after rumors they might strike in sympathy with the workers at the Fort Morgan facility.
“When you start having those headlines about a major packing plant like that has a lot of numbers per day. If you start taking them away then yeah we probably have enough numbers here for a little while,” he says.
That could keep the funds from buying back into the cattle futures as well according to Kooima.
Hogs Continue to Make New Lows
Lean hog futures were mostly lower early Tuesday and had lower weekly closes last week.
Kooima says the charts do not look good. “And when you got the funds in a marketplace like that, that are coming out of length, I don’t know if they’re necessarily adding to some shorts at all, but it’s just a stair step down. Hogs trend when they trend.”
He is hearing some constructive news for the market about smaller weekly kills and some empty hog barns, not just in the central but also the Eastern Midwest.
“So this disease issue is extreme. I wonder if it almost takes to the fourth quarter before it really takes hold,” he says.
Pork cutouts are also barely above $100 with beef at record prices and four times the price of pork, but it doesn’t seem to be attracting big demand. So he attributes it to slow domestic demand.
Weights also crept up a little last week as well. “It’s been a a mild colder spring. I know everything’s in a hog barn but it still has a little bit of
a impact on the weights here. We’ll see if we can with this 90 degree push here if we can take a little bit off,” he adds.
Grains Mostly Lower with Crude Oil
Grains were mostly lower on Tuesday morning in sympathy with the lower crude oil market and the possible cease fire with Iran that would open the Strait of Hormuz for 60 days.
He says, “The funds are watching that to a certain degree. And if we can’t get the crude to really take off, you know, over the weekend, we saw some, it seems like it’s the same headlines over in the Middle East about twice a day. And then the missiles fly yesterday, but crude, you know, does just seems like it’s numb to some of that stuff anymore.”
Cease Fire Could Trigger Fund Liquidation
As crude goes, unfortunately, Kooima says that’s what the grains want to do and he is concerned if a peace deal is signed it will have an even bigger negative impact on the grain markets.
“And if there’s any talk of a 30-day ceasefire, a 60-day, I think the funds are just going to come out of some of the length that they have.”
This is unless there is a bigger weather threat or China buys.
“It’s just May 26 right now. The middle of June is kind of when you really want to start looking at the forecast to see what those two-week models look like. And right now, the two-week model looks a little warmer and a little bit drier, actually, but it’s kind of what the crop needs here to get that stuff out of the ground,” he states.
If that hot, dry pattern extends to the end of June that is when the market could take note.
