Livestock and grain markets are all in the red on Monday morning.
Cattle See Profit Taking
Live and feeder cattle futures were lower early Monday with a risk off tone to the entire market place and it is end of the month and quarter and that creates some profit taking in profitable positions.
However, Brad Kooima of Kooima Kooima Varilek says in cattle it also comes after a push to new highs for this move last week in the futures and even new contract highs in the June live cattle futures on Friday.
“Quarter ends are actually a bigger deal than the month ends, and we’re coming up on both of those. Kind of a sad farewell to the June cattle futures contract. That was quite a historic move here that we had with the June,” he says.
Now August become the spot month, leaving plenty of time to figure out what August cattle need to be worth he adds.
Concern About Post Holiday Beef Demand
Kooima says there is also concern about post holiday demand and the relationship of the boxed beef to the cash market.
Choice boxes are at $391 and at the same price as last year, while the cash market is $30 higher than a year ago.
“And seasonally, the boxes go down. The choice, the middle meats, especially, we switched to more of a hot dog, hamburger type feature people go on vacation. So, we’re thinking last year we broke the boxes to like $365 you know by August another kill cut would be imminent or it may involve another plant shutdown or slow down,” he says.
Producers Losing Leverage?
Kooima says it also feels like producers are losing leverage as last week bids were harder to come by.
“We did have some $262 trade at least selectively in the North late on Friday to a regional. The south was at $258. So, all of a sudden the north is at least $2 and in instances of $4 over the south curious particularly given the imbalance in the supply because of the border being closed,” he adds.
He says this is the time of year when the number of formula cattle go up 15% to 18% verses negotiated, which also takes away producer leverage.
Cattle Market Looking Tired?
While feeder cattle futures were higher for the week last week, the live cattle slipped and Kooima is concerned that part of the market looks tired.
“I hope I’m dead wrong. I hope this market stays rock solid. It just feels like the market feels a little tired to me. You need good news every day to feed a bull like this one.”
The feeder market has been supported by the cash market with the index hitting a record $380.51 late last week.
Packer Bailout?
The other negative for the market is talk of meeting late last week between industry and USDA Secretary Brooke Rollins regarding a possible packer bailout.
“I think people jumped on the idea USDA may pay help pay packers for their losses for the last two years. I can’t even hardly talk about it without losing my stuff here. I can’t imagine that something like that would develop,” he says.
However, the talk on Monday morning is the program would focus on some of these small, medium. and regional packers and maybe
some producers to address or to try to talk about the problems that the packing industry has.
“I think we waited too long that we’re destroying the infrastructure in the United States. It is very obvious we’ve lost two packing plants already and we’re probably gonna lose another one. We’ve lost feedlot so they can feed them in Mexico and still sell the meat to us,” he explains.
Hogs Fail After Friendly Report
The lean hog futures were lower early Monday after nearby contracts had lower weekly closes.
Hog futures have failed to stage a meaningful rally despite a friendly USDA Hogs and Pigs Report. Prior to that funds were continuing to expand their hefty short position in the market.
Kooima says it is frustrating, “We saw the result of the smaller pig crop that we had been talking about because the disease problems, the farrowing intentions and all that other stuff, and yet we cannot seem to get off of square one. It comes down to a demand problem. First, we’ve got plenty of hogs, but we also have C -minus demand.”
He says global demand has slowed except for Mexico and domestic demand has also been sluggish, especially considering the high price of beef.
“You mean we can have $24 ribeyes and still can’t sell pork lines any higher than $1.89. The lack of demand, particularly when you’ve got the other red meat priced where it is, is highly disappointing,” And that is why the cash market has been stuck.
Currently cattle futures are priced at five times the value of hog futures, which he adds is crazy.
“It’s hard for me to be bearish hogs down to these values. You’d think you’d get a little lift here.”
Grains Fall with Rain and More Moderate Forecast
Corn and soybeans were lower Monday as well with end of month and end of quarter coming as well as the USDA Acreage and Quarterly Stocks reports.
However, weather is the big focus, as Kooima says rains fell over the weekend in dry areas of the Corn Belt, including northwest Iowa and southeast South Dakota.
“If you look at that if you look at a drought map or there’s this kind of almost pear-shaped deal of northwest Iowa, parts of Nebraska parts of South Dakota that are dry. Well it rained three inches at my farm and there were rains of anywhere from an 1 1/2 inches up to 4 inches is not uncommon,” he says.
The forecast also builds in heat over the Corn Belt but there are chances of rain the next four out of five days and then the heat breaks. So less of a threat than late last week.
“So, I think backing off on the forecast has a lot to do with it, as it should this time of year,” he adds.
He says the market will also be watching the acreage numbers from USDA with thoughts of less corn and more soybeans. The question will be how much of a shift we see.
